Erie Insurance v. Insurance Commissioner

KARWACKI, Judge. The parties to this expedited appeal, pursuant to Rule 8-207(b), have submitted an agreed statement of facts which we quote in full: On February 6, 1989, Farhad Verahrami [“complainant”], executed an application for automobile liability insurance with the appellant, Erie Insurance Company [“Erie”] in which he indicated that he had not received a ticket for speeding or any other motor vehicle code violation within the past three years. The application was accepted and Policy No. Q02 6101950 M was issued by Erie. A routine check of complainant’s driving record by Erie subsequently revealed that on the date the application was executed the complainant had been convicted of two moving violations within the past three years: on May 18, 1986, complainant was convicted for failing to obey a stop/yield sign; on June 7, 1986, complainant was convicted for exceeding the speed limit by one to nine miles per hour.

As a result of the complainant’s misrepresentation as to the existence of these moving violations, Erie sought to cancel its insurance with the complainant by forwarding to the complainant a notice of cancellation dated March 3, 1989. The reasons for the cancellation as set forth in the notice were as follows: ³¹⁹ We are cancelling your policy for material misrepresentation. The application Mr. Verahrami signed listed no violations in the past three years. According to your Maryland Motor Vehicle Report, you had a stop/yield/ sign violation on 5/18/86 and a speeding violation on 6/7/86.

Due to the increase in hazard generated by the misrepresentation of your driving record, we are not willing to continue to insure you through the Erie Insurance Company. Our Defensive Driver Plan is not designed to generate sufficient additional premium to offset your increased chance of loss. We are unwilling to insure anyone who does not truthfully complete our application. We are not offering an exclusion since you are listed as the only driver of your vehicle.

As a result of the complainant’s protest, a hearing was held before the Insurance Division of the Department of Licensing and Regulation on August 23, 1989 with a representative of Erie in attendance. The complainant did not appear at the hearing. By Order dated September 15, 1989, the hearing examiner made the following findings of fact: I find, as a fact, that the Licensee seeks to terminate coverage because the Complainant is alleged to have misrepresented his driving record on his application for insurance. I find that on February 6, 1989, the Complainant executed an application for insurance, which indicated that he had not received a ticket for speeding or any other motor vehicle code violation within the past three years.

I find that on the date the application was executed, the Complainant had been convicted of two (2) moving violations: 05- 18-86 Failure to obey stop/yield sign 06- 07-86 Exceeding maximum speed limit by 1-9 MPH I find that Licensee’s underwriting standards state a driver is an acceptable risk if a surcharge is not required “because of more than 3 points accumulated ³²⁰ during the last 3 years.” An operator is assessed one (1) point for each moving violation. The fact that the Complainant failed to divulge his two (2) moving violations on the February 6, 1989 application was not material to the risk. The hearing examiner concluded that the non-disclosed information was not a material misrepresentation. The hearing examiher held that “a misrepresentation is material if Licensee would not have offered coverage had it been aware of the information presented,” citing Government Employees Insurance Company v. Insurance Commissioner, 273 Md. 467 , [330] A.2d 653 (1975) and Miller v. Insurance Commissioner, 70 Md.App. 355 , 521 A.2d 761 (1987).

The hearing examiner concluded that because Erie had a rate for an individual with two traffic violations, Erie’s attempt to cancel the complainant’s insurance was a violation of Md.Ann.Code Art. 48A, § 234A and § 240AA. Accordingly, Erie’s attempt to cancel complainant’s insurance policy was disallowed. Pursuant to Md.Ann.Code, Art. 48A, § 40 (1986 Replacement Vol. 1989 Cum.Supp.), Erie timely noted an appeal from the Insurance Commissioner’s Order. A hearing was held in the Circuit Court for Baltimore