Fromberg v. Insurance Commissioner

ALPERT, Judge. Appellant, Zachary Fromberg, appeals to us from an order of the Circuit Court for Baltimore City (the Hon. Thomas Ward, presiding) affirming the action of the Insurance Commissioner permitting appellee, Allstate Insurance Company (“Allstate”), to “non-renew” appellant’s automobile liability insurance policy. We are asked to consider whether: I. The lower court erred in refusing to consider evidence not presented before the Insurance Commissioner.

II

The lower court erred in affirming the order of the Insurance Commissioner. ²³⁸ Facts and Proceedings Zachary Fromberg was an insured of Allstate for thirty-three years, from 1956 through 1989. He was considered by Allstate to be an acceptable risk during that time. On May 10, 1989, Allstate notified Fromberg of its intention to refuse to renew his policy unless Fromberg chose to be excluded from that policy. The grounds for the non-renewal were three claims that Allstate had paid under the policy and a speeding ticket that Fromberg had received.

Allstate had paid $542 when Fromberg hit a fixed object on 12/5/88; it paid $181 when Fromberg struck another vehicle while backing up on 12/24/86; and it paid $333 when Fromberg struck a second parked vehicle on 7/16/88. Fromberg had received the speeding ticket on 1/15/87. Allstate’s non-renewal notice explained that [i]n determining whether a particular risk should be continued, Allstate relies on certain recognized independent research studies [that] have shown that people with accident and/or motor vehicle violation involvement are more likely to have future accidents than people without this involvement. The notice then listed one such study, entitled “Basic California Traffic Conviction and Accident Record Facts, December 1987” (“the California Study”).

It cited a table containing accident and violation data developed in the California Study. The notice informed Fromberg that “[a]pplying this table to your policy record indicates a significantly greater chance of future accidents.” Fromberg protested the notice of non-renewal, pursuant to Article 48A, Section 240AA(d) of the Insurance Code. 1 On September 21, 1989, a hearing was held before a Hear ²³⁹ ing Examiner. Appellant was not represented by an attorney. Allstate produced a sole witness, Steve Kreseski, who testified that Allstate, due to its “effort to provide preferred coverage, seeks to insure those drivers that have a minimum amount of accident-involvement history.” He explained that under Allstate’s underwriting standards, “any driver who has two or more occurrences within a three-year period shall be excluded from a multiple-driver policy or non-renewed.” He added that given his driving record, Fromberg exceeded those standards.

Kreseski further noted that Allstate’s ability to surcharge for accidents was limited to the last two at-fault accidents 2 and that Allstate could not apply a surcharge for violations. Kreseski then referred to the California Study cited in Allstate’s non-renewal notice. He stated that Allstate relied on the study for the proposition that [a] driver who has had either traffic convictions or accident involvement is more likely to have an increased frequency of accident involvement than a driver who has had no previous traffic convictions or accident involvement history within that three-year period. He explained that a driver like Fromberg, “who has had three accidents has a 4.48 times greater chance of subsequent accident, whereas a driver with one traffic violation has a 1.62 times greater chance of accident involvement.” Kreseski asked to introduce the affidavit of Matthew Stegle, an Allstate representative.

This affidavit explained how statistical data drawn from the California Study was used by Allstate to estimate future accident involvement. It further described in-house studies that Allstate had performed to determine the frequency of accident involvement by the average Allstate insured. The affidavit included a three-page addendum that set forth data from the Califor ²⁴⁰ nia study addressing the “increased chances of future accident involvement for drivers with prior accident/violation involvement compared with drivers without prior accident/violation involvement.” Stegle explained that this data was used in Allstate’s cancellation/non-renewal notices. The Hearing Examiner asked Fromberg if he wanted time to review the eight-page affidavit.

Fromberg declined, and objected to the admission of the affidavit on the grounds of materiality. Fromberg’s objection was noted and overruled. The Hearing Examiner admitted the document, “with the caveat that it will be given the appropriate weight that it merits when I review the evidence at a later point in time.” Kreseski then concluded his testimony. Fromberg had no questions to ask him, and proceeded to give his own testimony.

The Hearing Examiner issued her Order on Hearing on behalf of the Insurance Commissioner on October 26, 1989. She ruled that Allstate had not violated sections 234A 3 and 240AA 4 of the Insurance Code, and had met its “burden of proof and production as set forth and required by Section 234A of Article 48A and Crumlish v. Insurance Commissioner, et al, 70 Md.App. 182 , 520 A.2d 738 (1987).” She based these conclusions of law on the following findings of fact: ²⁴¹ Licensee proposed to nonrenew Policy No. 18 065 495 for the reasons set forth in its notice dated May 10, 1989; or in lieu of said nonrenewal, Licensee proposed to exclude ZACHARY FROMBERG from coverage under said policy for the reasons set forth in its notice. Complainant protested Licensee’s proposed action and upon due consideration of the testimony and exhibits, I find, as a fact, that the Licensee utilizes underwriting standards which provide that it will not continue to insure any driver who has a frequency of losses, convictions for motor vehicle violations, or combination of losses and convictions (frequency is defined as at least two losses and/or convictions by any one operator). The Hearing Examiner finds that ZACHARY FROM-BERG has the following driving record: 12/05/88 At-fault accident in which Zachary struck a light pole and for which Licensee paid $542.00 under collision; 12/24/86 At-fault accident in which Zachary backed into Claimant’s vehicle and for which Licensee paid $81.00 under property damage; 07/16/88 At-fault accident in which Zachary struck Claimant’s parked vehicle in a parking lot and for which Licensee paid $333.00 under property damage; and 01/15/88 Violation for speeding.

The Hearing Examiner finds that the driving record of ZACHARY FROMBERG exceeds the Licensee’s underwriting standards; and that the driving record of ZACHARY FROMBERG presents additional exposure to the Licensee which is not contemplated by its rating plan. The Licensee produced statistical data from an independent research study which demonstrated that ZACHARY FROMBERG belongs to a group or class of drivers who by virtue of 3 accidents has a 4.48 times greater chance of future accident involvement as compared to a driver with zero accidents. The Licensee produced statistical data from an independent research study which demonstrated that ZACHARY ²⁴² FROMBERG belongs to a group or class of drivers who by virtue of 1 conviction has a 1.62 times greater chance of future accident involvement as compared to a driver with zero convictions. The Hearing Examiner finds that the statistical data presented is valid.

The Licensee produced other statistical data which demonstrated there is a strong relationship between past accidents and violations and the probability for future accident involvement. The Hearing Examiner finds that the Licensee’s rating plan does not provide for the imposition of an adequate rate for ZACHARY FROMBERG. The Hearing Examiner finds the Licensee’s application of its underwriting standards to be reasonably related to its economic and business purpose. The Licensee’s rating plan does not contemplate coverage for the additional exposure presented by the driving record of ZACHARY FROMBERG.

Continuation of coverage for ZACHARY FROMBERG under circumstances where the Licensee will not receive an adequate rate for such additional exposure will adversely affect the Licensee’s losses and expenses. Appellant then appealed to the Circuit Court for Baltimore City, in accordance with the procedures for appeal outlined in Article 48A, sections 240AA and 40 of the Insurance Code. On May 10, 1990, a hearing was held before Judge Thomas Ward. Fromberg was represented by an attorney at the hearing.

On May 16, 1990, Judge Ward affirmed the Insurance Commissioner. Fromberg then noted this appeal. The Law I. Appellant contends that the circuit court erroneously refused to consider new evidence that was not before the Insurance Commissioner. Specifically, appellant is referring to the California Study, which was not offered into ²⁴³ evidence by Allstate at the first hearing.

It was, however, referred to in two pieces of evidence that were admitted, namely the notice of non-renewal and the Stegle affidavit, and was cited in testimony by Allstate’s representative, Kreseski. At the circuit court hearing, appellant proffered a copy of the California Study to show that (1) through the Stegle affidavit, Allstate had misrepresented mathematical computations contained within the study, and (2) Allstate in general had misapplied the California Study to appellant, the insured. Judge Ward refused to receive the Study into evidence. He stated, I’m sympathetic with you, but you can’t now rechange the record or put new evidence in.

You can tell me what the existing record has that’s inaccurate, but you’ve got to use the record itself to show it. Appellant argued that in reviewing tables reproduced from a study without seeing the actual study, the Hearing Examiner had committed an error that substantially prejudiced appellant’s rights, and had arrived at a decision that “was not supported by competent material and substantial evidence in view of the entire record” and involved an error of law. The circuit court rejected appellant’s argument that this alleged error should compel the court at least to remand the case to the Hearing Examiner. 5 Appellant now argues that the court statutorily was required to consider the study. Pursuant to Article 48, section 40(4) of the Insurance Code, which addresses the de novo nature of appeals from the Insurance Commissioner, it is provided that ²⁴⁴ [ujpon receipt of such transcripts and evidence the court shall hear the matter de novo as soon as reasonably possible thereafter.

Upon hearing of the appeal, the court shall consider the evidence contained in the transcript, exhibits, and documents therein filed by the Commissioner, together with such additional evidence as may be offered by any party to the appeal. Id. The Court of Appeals has determined that “any party to the appeal [from the Insurance Commissioner] may offer additional evidence as a matter of right. Taking Sections 40(4) and (5) together, as we must, it is clear that this is the only meaning of “de novo” in Section 40(4).” Nuger v. Insurance Comm’r, 238 Md. 55, 61 , 207 A.2d 619 (1965).

To reach that conclusion, the Nuger court reasoned: that under the old law additional evidence could be offered in the judicial proceedings on the appeal only if the court were satisfied that the evidence was material and that there were good reasons for failure to present it in the administrative proceedings, whereas under the new law any party to the appeal may offer additional evidence as a matter of right. Thus, it is clear that Fromberg had the right to introduce the California Study subject, of course, to general rules of evidentiary admissibility. The trial judge erred in denying that right. See also Government Employees Ins.

Co. v. Ins. Comm’r, 40 Md.App. 201, 208 , 389 A.2d 422 (1978).

II

It is well