Daughton v. Maryland Automobile Insurance Fund

EYLER, DEBORAH S., J. In the Circuit Court for Baltimore County, Mary Katherine Daughton, the appellant, sued the Maryland Automobile Insurance Fund (“MAIF”), the appellee, for breach of contract and declaratory judgment, alleging 1) that it failed to pay her Personal Injury Protection (“PIP”) benefit claim within 30 ⁵²⁸ days, in violation of Md.Code (2006 Repl.Vol., 2010 Supp.) section 19-505 of the Insurance Article (“Ins.”); and 2) that it then failed to pay interest on the late payment, in violation of Ins. section 19-508. Daughton’s complaint sought class action certification, but the court never ruled on that issue. MAIF moved for summary judgment, arguing, inter alia, that the claims against it were barred by Md.Code (2009 Repl.Vol., 2010 Supp.), section 12-202 of the State Government Article (“SG”). Specifically, MAIF asserted that it is an agency or instrumentality of the State and therefore enjoys sovereign immunity; that, under SG section 12-202, its sovereign immunity for breach of contract claims is waived only when suit is filed within one year; and that Daughton’s action was filed outside that period.

The court held an evidentiary hearing on the sovereign immunity aspect of MAIF’s summary judgment motion and, thereafter, in a thorough memorandum opinion and order, ruled in MAIF’s favor on both of Daughton’s claims. 1 This appeal followed. Daughton raises three questions for review, all of which are arguments challenging the circuit court’s decision to grant summary judgment to MAIF. As rephrased, they are: I. Did the circuit court err in ruling that MAIF is an agency of state government that enjoys sovereign immunity when it engages in the business of automobile insurance?

II

Did the circuit court err in ruling that there is no implied private right of action arising under Ins. section 19-508 for the recovery of statutory interest?

III

Did the circuit court err by concluding that Daughton’s claims were barred even though her insurance ⁵²⁹ contract with MAIF was not “completed,” within the meaning of SG section 12-202, when she filed suit? 2 For the following reasons, we shall affirm the judgment of the circuit court. 3 LEGAL FRAMEWORK A. Creation and Operation of MAIF In 1972, the General Assembly enacted a “sweeping overhaul” of the automobile insurance laws in Maryland. GEICO v. Insurance Comm’r, 273 Md. 467, 480 , 330 A.2d 653 (1975); Laws of 1972, ch. 73. The new legislation required every owner of a motor vehicle registered in Maryland to maintain a liability insurance policy with specified minimum coverage. Laws of 1972, ch. 73.

It simultaneously created MAIF. MAIF was established to, and still does, serve dual roles: (1) to act as the insurance carrier of last resort for drivers unable to obtain motor vehicle liability insurance in the private market; and (2) to act as a successor to the Unsatisfied Claim and Judgment Fund (“UCJF”)- 4 In this case, our focus is on MAIF’s role as the insurance carrier of last resort. ⁵³⁰ “The purpose of [MAIF] is to provide the financial security required under § 17-103 of the Transportation Article to those eligible persons that are unable to obtain it from” a member of the Industry Automobile Insurance Association (“IAIA”). 5 Ins. § 20-301. MAIF is governed by a 13-mem-ber Board of Trustees. Id. at § 20-202(b)(1).

Seven of its members are appointed by the Governor, with the advice and consent of the Senate, and serve at the pleasure of the Governor. Id. at § 20-202(b)(2)(i) and (e)(1). Five of its members are appointed by the Board of Directors of the IAIA and serve four-year terms. Id. at § 20-202(b)(2)(ii) and (c)(2).

The final member is the Executive Director and is appointed by the Board of Trustees with the approval of the Governor. Id. at §§ 20—202(b)(2)(iii) and 20-203(a)(1). MAIF is funded through “revenues, premiums and other receipts provided by law.” Id. at § 20-301(b). Its operating expenses are paid out of these monies, rather than through General Fund appropriations.

Id. at §§ 20-301(c) and 20-302(b). Moreover, its debts and obligations are “not a debt of the State or a pledge of the credit of the State.” Id. at § 20-302(c). MAIF’s funds are managed and invested by a financial management committee consisting of the Executive Director and two members of the Board of Trustees. 6 Id. at § 20—303(a)(1) and (2). “Consistent with minority business purchasing standards applicable to units of State government,” in investing its funds, the financial management committee “shall attempt to use to the greatest extent feasible minority business enterprises.” Id. at § 20-303(c)(1)(i). ⁵³¹ If MAIF operates at a loss for a given calendar year, it is entitled to recoup the loss via an assessment against private liability insurance carriers doing business in the State. Id. at § 20-404.

The insurers in turn are authorized to pass this cost on to their customers via an “assessment surcharge” on each policy issued in the following fiscal year. Id. at § 20-406. In its capacity as an insurer, MAIF “issues policies, charges and collects premiums, and adjusts, settles, and pays claims.” 85 Op. Atty.

Gen. 132, 133 (2000). Like private liability insurance carriers, MAIF generally is subject to the regulatory scheme set forth in the Insurance Article. Unlike private insurers, however, MAIF is required, with limited exceptions, to provide liability insurance to any owner of a “covered vehicle” who has been rejected for coverage by two IAIA members or who has had his or her policy with an IAIA member canceled or not renewed. 7 Id. at § 20-502. Different standards also are applied to the rates set by MAIF.

Thus, while MAIF’s Executive Director is charged with setting MAIF’s rates and filing them with the Insurance Commissioner, id. at § 20-507(a) and (b), in the conduct of his review, the Commissioner “shall consider not only the rating principles under Title 11, Subtitle 2 of this article,[ 8 ] but also the statutory purpose of the Fund under § 20-301 of this title.” 9 Id. at § 20-507(d). B. PIP Coverage Pursuant to Ins. section 19-505, “each insurer that issues, sells or delivers a motor vehicle liability insurance ⁵³² policy in the State shall provide coverage for the medical, hospital, and disability benefits described in this section.” These benefits are known as PIP benefits. “The primary purpose of [Ins. § 19-505] 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.” Huntt v. State Farm Mut. Auto. Ins.

Co., 72 Md.App. 189, 192 , 527 A.2d 1333 (1987) (citations and internal quotations omitted). Ins. section 19-508(a)(l) requires a motor vehicle liability insurer to pay PIP benefits “periodically as claims for the benefits arise and within 30 days after the insurer receives satisfactory proof of claim.” If the insurer fails to pay PIP benefits within 30 days, overdue payments “shall bear simple interest at the rate of 1.5% per month.” Id. at § 19-508(c). FACTS AND PROCEEDINGS From February 17, 2005, until February 17, 2006, Daughton was the named insured under a MAIF automobile insurance policy. On June 2, 2005, she was involved in an automobile accident. 10 Shortly thereafter, she submitted a PIP claim to MAIF for medical expenses allegedly arising from the accident.

In November of 2005, more than thirty days after Daughton submitted her claim, MAIF paid it. It did not pay interest on the late PIP payment, however. Around two and one-half years later, on April 30, 2008, Daughton filed suit against MAIF in the circuit Court for Baltimore County. Her complaint set forth two counts, seeking damages for breach of contract and a declaratory judgment.

As noted above, she alleged that MAIF had failed to timely pay her PIP benefits; that as a result she was entitled to statutory interest on the overdue benefits; and that MAIF had failed to pay the statutory interest. ⁵³³ On June 1, 2009, MAIF moved for summary judgment. As relevant to this appeal, it argued that Daughton’s breach of contract claim was barred by sovereign immunity because Daughton had not filed suit within the one-year period in which immunity was waived under SG section 12-202; and that the court should declare the parties’ rights by ruling that Daughton’s claims were barred by sovereign immunity. 11 Daughton filed an opposition to the motion for summary judgment, arguing, as pertinent here, that MAIF did not enjoy sovereign immunity in its capacity as a seller of insurance policies. On September 3, 2009, the circuit court entered an order denying the motion for summary judgment. The order further stated that “both parties should see the need to develop this further so as to avoid a remand by Annapolis for facts upon which the argument of government function or proprietary function are based.” The court suggested that the parties move to bifurcate the issues.

Thereafter, MAIF moved for reconsideration or, in the alternative, for separation of the issues. The motion for reconsideration was denied but the issue of sovereign immunity was bifurcated. On December 1, 2009, the circuit court held an evidentiary hearing on the issue whether MAIF is a State agency or instrumentality and therefore enjoys sovereign immunity. 12 MAIF called one witness, Mark McCurdy, the Director of Government Policy Administration for MAIF. Daughton did not call any witnesses.

McCurdy testified at length concerning the governance of MAIF, its financial management, and the regulations that govern it. He distinguished MAIF’s operations from those of a private automobile liability insurance carrier in several key ways, including that MAIF cannot ⁵³⁴ choose whom it insures; that it can void a policy, as opposed to canceling it; and that it can collect against debtors by means of the Maryland Tax Refund Intercept Program, which only is available to state agencies. He also testified about MAIF’s right to recoup budgetary shortfalls through the special assessment procedures discussed above. He recounted that MAIF had utilized these procedures “regularly up until 1989.” At the conclusion of the hearing, the court held the matter sub curia.

On December 17, 2009, the court issued a memorandum opinion and order granting judgment in favor of MAIF on both of Daughton’s claims. The court noted that Daughton’s counsel had conceded that she had not filed her claim within the one-year period prescribed by SG section 12-202 and, therefore, if MAIF is an agency or instrumentality of the State and therefore is entitled to sovereign immunity, Daughton’s claims were barred. The court emphasized that it was required to analyze “[a]ll aspects of the interrelationship between the State and [MAIF]” to determine if MAIF is an “agency or instrumentality of the State.” The A.S. Abell Publishing Co. v. Mezzanote, 297 Md. 26, 35 , 464 A.2d 1068 (1983). After reviewing a number of cases, which we shall discuss infra, the court addressed the two purposes served by MAIF.

Explaining that Harrison v. Motor Vehicle Administration, 302 Md. 634 , 490 A.2d 694 (1985), established that MAIF is a State agency entitled to sovereign immunity when it acts as the successor to the UCJF, the court found that MAIF also serves a “Statewide[ ] public purpose! ]” in its role as the automobile liability insurance carrier of last resort. In that capacity it advances “the remedial purpose of protecting the public by assuring that operators and owners of other vehicles are able to pay compensation to victims for injuries sustained in automobile accidents.” The court next considered McCurdy’s testimony concerning MAIF’s governance and operations. It pointed out that MAIF’s meetings are open to the public under the Open ⁵³⁵ Meetings Act, SG § 10-501, et seq.; that it is subject to the Maryland Public Information Act (“PIA”), SG § 10-611, et seq.; and that it is subject to the Procurement Article of the Maryland Code in that all leases, construction, and other real estate matters involving MAIF must be approved by the General Services Administration. The court explained that the Governor appoints a majority of the members of MAIF’s Board of Trustees and the legislature regulates MAIF’s finances by conducting annual fiscal audits.

The court emphasized that the legislature has granted MAIF unique “tools” it can use in the case of a budget shortfall and to collect monies owed to it. Finally, the court rejected an argument raised by Daughton that a State agency can enjoy sovereign immunity when performing a governmental function (according to Daughton, MAIF when acting as successor to UCJF), but not when performing a proprietary function (according to Daughton, MAIF when acting as insurer of last resort). It observed that the authorities cited by Daughton regarding the distinction between proprietary and governmental functions apply only to immunities of local governments or municipalities, not to State sovereign immunity. The court concluded: MAIF qualifies as a State agency or instrumentality even when operating in its role as an insurer of automobile drivers who cannot obtain insurance from private insurers, an important public purpose for which MAIF was created by the legislature to meet the need caused by the inability of many motorists to obtain insurance through the private insurance industry.

The court also found unpersuasive Daughton’s argument that Ins. section 19-508(c) created a private right of action against MAIF. (Daughton had argued that such an action would not be subject to the one-year filing requirement imposed by SG section 12-202.) The court concluded that MAIF is an agency or instrumentality of the State that is entitled to sovereign immunity when acting in its capacity as an insurer; that the legislature waived ⁵³⁶ MAIF’s immunity to suit in contract only to the extent set forth in SG section 12-202; and that, having failed to file suit within the period prescribed by SG section 12-202, Daughton’s claims were barred. It granted judgment in favor of MAIF on both counts. 13 The court’s memorandum opinion and order was not entered on the docket until January 11, 2010. In the meantime, however, on December 23, 2009, Daughton filed a motion to alter or amend the judgment.

Having already received the court’s December 17, 2009 memorandum opinion and order, even though it had not yet been docketed, she asserted that the court’s decision on the issue of sovereign immunity was not dispositive because the one-year period for filing suit under SG section 12-202 did not begin to run until “the later of: (1) the date on which the claim arose; or (2) the completion of the contract that gives rise to the claim,” and the underlying contract, ie., Daughton’s insurance policy with MAIF, was not “completed.” In advancing this new argument, she asserted that the contract was not completed because ⁵³⁷ MAIF had failed to pay the statutory interest owed on the late-paid PIP benefits. On January 4, 2010, the court issued an order denying Daughton’s motion to alter or amend. The order was entered on January 7, 2010. As noted, on January 11, 2010, the court’s December 17, 2009 memorandum opinion and order was entered.

Daughton noted a timely appeal on February 1, 2010. We shall include additional facts as necessary to our discussion of the issues. DISCUSSION I. Sovereign Immunity In Katz v. Washington Suburban Sanitary Comm’n, 284 Md. 503, 507 , 397 A.2d 1027 (1979), the Court of Appeals explained the doctrine of sovereign immunity in Maryland: The doctrine of sovereign immunity from suit, rooted in the ancient common law, is firmly embedded in the law of Maryland. See, e.g., Bradshaw v. Prince George’s County, 284 Md. 294 , 396 A.2d 255 (1979); American Structures v. City of Balto., 278 Md. 356 , 364 A.2d 55 (1976); University of Maryland v. Maas, 173 Md. 554 , 197 A. 123 (1938).

Although originally based on the tenet that “the King can do no wrong,” the doctrine is presently viewed as a rule of policy which protects the State from burdensome interference with its governmental functions and preserves its control over State agencies and funds. See Godwin v. County Comm’rs, 256 Md. 326 , 260 A.2d 295 (1970); Baltimore v. State, 173 Md. 267, 271 , 195 A. 571, 573-74 (1937); State v. Wingert, 132 Md. 605 , 104 A. 117 (1918); State v. B. & O. R.R. Co., 34 Md. 344 (1871), aff'd, 88 U.S. 456 [ 21 Wall. 456 ], 22 L.Ed. 678 (1875); 72 Am.Jur.2d States, Territories, & Dependencies § 99 (1974). (Footnote omitted.) The doctrine applies not only to the State but also to its “agencies and instrumentalities, unless the ⁵³⁸ General Assembly has waived the immunity either directly or by necessary implication.” Id. at 507-08, 397 A.2d 1027 . In 1976, the General Assembly enacted a conditional waiver of sovereign immunity in contract actions against the State.

See Laws of 1976, ch. 450. SG section 12-201, captioned “Sovereign immunity defense barred,” states that the State, its officers, and its units may not raise the defense of sovereign immunity in a contract action, in a court of the State, based on a written contract that an official or employee executed for the State or 1 of its units while the official or employee was acting within the scope of the authority of the official or employee. SG section 12-202 conditions the waiver of sovereign immunity as follows: “A claim under this subtitle is barred unless the claimant files suit within 1 year after the later of: (1) the date on which the claim arose; or (2) the completion of the contract that gives rise to the claim.” The one-year filing deadline established in SG section 12-202 “is not a mere statute of limitations but sets forth a condition to the action itself.” State v. Sharafeldin, 382 Md. 129, 148 , 854 A.2d 1208 (2004). At the end of the one-year period, “[t]he waiver of the State’s immunity vanishes” and any action is barred.

Id. at 148-49 , 854 A.2d 1208 . The Court of Appeals has repeatedly recognized that there is no single test for determining whether a statutorily-established entity is an agency or instrumentality of the State for a particular purpose. All aspects of the interrelationship between the State and the statutorily-established entity must be examined in order to determine its status. Mezzanote, supra, 297 Md. at 35 , 464 A.2d 1068 .

The State need not exercise “control over all aspects of an entity’s operation” for the entity to be deemed an agency or instrumentality of the State. Id. In Mezzanote, supra, the Court of Appeals was concerned with whether the Maryland Insurance Guaranty Association (“MIGA”), was an agency or instrumentality of the State ⁵³⁹ subject to the PIA. MIGA was established in 1971 by the General Assembly as a “nonprofit unincorporated legal entity” to “protect the public by avoiding financial loss to policyholders and claimants resulting from the insolvency of insurers and by preventing insurer insolvencies.” Id. at 32 , 464 A.2d 1068 .

The case arose after a newspaper reporter submitted a PIA request to the Chairman of MIGA’s Board of Directors. 14 The request was denied on the basis that MIGA was not an agency or instrumentality of the State and, as such, was not subject to the PIA. The newspaper publisher filed suit against MIGA. MIGA moved for summary judgment, asserting that it was “not sufficiently controlled by the State to be characterized as an agency or instrumentality of the State.” Id. at 30 , 464 A.2d 1068 . The circuit court granted judgment in favor of MIGA and the publisher appealed.

Before the appeal could be heard in this Court, the Court of Appeals granted certiorari It reversed the judgment of the circuit court, holding as follows: The record shows that MIGA was established by the General Assembly so that its existence is subject to legislative control. It was established for a public purpose and has the obligation to protect claimants, policyholders, and indeed the public, by preventing member insurer insolvency and paying claimants on covered claims against an insolvent member insurer. MIGA can be effectively controlled by the State because its Board is not self-perpetuating. Although the Directors serve fixed terms and the Chairman of the Board is elected by its members, the Commissioner appoints the Directors and fills vacancies.

MIGA is not authorized to manage its affairs independent of governmental control. Its plan of operation, consisting of various rules and regulations establishing all of its procedures, is subject to approval and ⁵⁴⁰ amendment by the Commissioner; the delegation of certain powers by the Board is subject to approval by the Commissioner; its designation of a member insurer as a “servicing facility” is subject to approval and revocation by the Commissioner; and it is expressly subject to examination and regulation by the Commissioner to whom its Board is required to submit an annual report. Moreover, the Commissioner has power to change a decision made by the Board as a result of the authority to entertain appeals from the Board’s final actions. Additionally, MIGA has no authority to enforce its regulations.

Although all insurers are required to be members, it is the Commissioner, not the Board, who is authorized to revoke a member insurer’s authority to operate if it fails to pay an assessment or comply with the plan. Finally, the General Assembly afforded MIGA special status by exempting it from State and local taxes other than property taxes, and from liability for actions taken in the performance of its duties. In sum, MIGA’s existence depends upon the General Assembly; it serves a public purpose, its management is selected by the Commissioner, and is not self-perpetuating; it does not independently manage its affairs or enforce its regulations; its decisions may be reversed by the Commissioner; and it enjoys a special tax and liability status. We recognize that the State does not exercise control over all aspects of MIGA’s operation.

Nevertheless, the degree of control exercised by the State over MIGA’s operation exceeds the degree of control exercised by the City over the Hospital’s operation in Moberly [v. Herboldsheimer, 276 Md. 211 , 345 A.2d 855 (1975) ]. After examining all aspects of the interrelationship between the State and MIGA, including the degree of control exercised by the State over MIGA’s operation, we are persuaded that MIGA is an agency or instrumentality of the State within the scope of the Public Information Act. Such an interpretation is consonant with the statutory mandate that the Public Information Act be liberally construed in order to effectuate its broad remedial purpose. ⁵⁴¹ Id. at 37-39, 464 A.2d 1068 . See also Napata v. Univ. of Md. Med.

System Carp., 417 Md. 724, 733-37 , 12 A.3d 144 (2011) (applying the holding in Mezzanote and concluding that the University of Maryland Medical System Corporation is an instrumentality of the State for purposes of the PIA). In Central Collection Unit v. DLD Associates Limited Partnership, 112 Md.App. 502 , 685 A.2d 873 (1996), this Court addressed whether the Injured Workers’ Insurance Fund (“IWIF”) is an agency or instrumentality of the State. At issue in that case was whether the Central Collection Unit’s (“CCU”) action on behalf of IWIF against DLD to collect on an unpaid debt allegedly owed by DLD was barred by the general three-year statute of limitations for contract actions. The statute of limitations would not apply to IWIF if it were an agency or instrumentality of the State “ ‘su[ing] in its sovereign capacity in its own courts.’ ” Id. at 508 , 685 A.2d 873 (quoting Cent.

Collection v. Gettes, 321 Md. 671, 675 , 584 A.2d 689 (1991)). We began by rejecting DLD’s argument that, by designating IWIF as “independent of all State units,” see Md.Code (2008 Repl. Vol., 2010 Supp.), § 10-105(a) of the Labor and Employment Article, the legislature effectively had answered the question whether IWIF was an agency or instrumentality of the State. We explained that the legislature’s expressed intent that IWIF operate independently of other government departments or agencies, such as the Workers’ Compensation Commission or the Office of Administrative Hearings, was not dispositive of whether IWIF is a State agency or instrumentality.

We emphasized, moreover, that the legislature’s failure to expressly designate IWIF as an