Government Employees Insurance v. Insurance Commissioner

Gilbert, C. J., delivered the opinion of the Court. Insurance, 1 it has been said, is something like gambling— you bet against yourself while the insurance company 2 bets on you. This appeal arises because Government Employees Insurance Company (GEICO) refused to “cover,” by way of policy renewal, the “bet” placed by Leonard and Audrey K. Frank on an automobile, titled in the name of the Franks, but actually operated by their son, Alan. Alan did not live with his parents, arid he maintained possession of the vehicle.

During the period May 27,1975, through June 22,1976, Alan amassed four (4) speeding violations. Three (3) of them were for exceeding the posted speed limit by more than ten (10) miles per hour. GEICO’s underwriters were of the view that the “odds” were that Alan was a serious accident waiting to happen, and thus, it notified the Franks of the non-renewal of the policy it had previously issued on the automobile that Alan exclusively used. The Franks complained to the State Insurance Commissioner (Commissioner), who directed that a hearing be held on GEICO’s refusal to renew.

As a result of that hearing, the Commissioner ordered GEICO to “coyer” the Franks’ “bet” in the form of a renewal of the policy and to surcharge the Franks for the additional risk that GEICO . was assuming by continuing to insure the vehicle driven by Alan. GEICO, firmly of the belief that the Commissioner had misinterpreted the law and consequently exceeded his authority, appealed to the Baltimore City Court. 3 There, Judge Basil A. Thomas agreed with the Commissioner’s concept of the law and also held that GEICO had not properly furnished notice pf non-renewal to the Franks. Unshaken in its conviction that the Commissioner was wrong, and that the court incorrectly affirmed the erroneous ²⁰³ decision, GEICO has brought its grievance to us. In this Court, GEICO asks five (5) questions. 4 Because of our view of the case, we find it unnecessary to discuss more than two of the issues raised, i.e., part of question one and all of question three, which we treat as one.

Before doing so, however, we shall sketehingly set the stage from which this drama unfolded. Neither Alex Haley 5 nor any other genealogist is needed to determine that the “roots” of civil appeals are ordinarily found in the financial difficulties of one of the parties litigant. The “roots” of the case sub judice have grown from GEICO’s fiscal embarrassment. Early in the 1970’s, GEICO was in serious financial straits as a result of staggering underwriting losses that occurred in 1974 and 1975.

The loss for 1975 alone was $191,000,000, and in the words of its brief in this case, “For many months, it was touch and go whether GEICO would survive.” The Superintendent of Insurance of Washington, D.C., GEICO’s home base, ordered that the company “reduce the number of its automobile policies over a two-year period by 40%.” ²⁰⁴ Seeking to improve its financial condition, GEICO applied to the Commissioner in June 1976 for a twenty-one point nine (21.9) per centum increase in its automobile insurance premium charges. After a hearing thereon, the sought rate hike was rejected. GEICO then promptly requested a more modest ten (10) per centum rate increase and submitted “a merit-demerit surcharge plan.” The plan proposed the lowering of premiums for violation-free drivers, while surcharging those drivers who had accumulated what may be characterized as bad driving records. 6 On August 25, 1976, the chairman of the board of GEICO explained in a letter to the Commissioner that: “We [GEICO] intend that the Driver Record Rating Plan will ‘re-distribute’ our premium income among the good and the bad drivers, and the premium received by the Company will remain the same. “It is our expectation that the volume of our non-renewal activity in Maryland will be reduced as a result of the implementation of this Plan.” (Emphasis supplied.) The Commissioner responded to GEICO’s chairman in a letter dated September 1, 1976, noting his approval of the Plan, with the following qualifying comment: “Approval [of the rate increase and surcharge plan] is based on assurance that the rates will be applied in order to expand the market for automobile insurance in this state and that cancellation and insurance [non-]renewal will not be made where rates for the applicants rates is [s/e] provided.” (Emphasis supplied.) GEICO’s chairman answered in a letter dated September 2, 1976 by stating: “We note that your approval is based on our prior assurance that the rates will be applied in order to ²⁰⁵ expand the market for automobile insurance by lessening the rate of our non-renewals in the State of Maryland. As I previously indicated to you, it is our intention through the implementation of the above changes to materially reduce the volume of this Company’s non-renewal activity in the State of Maryland.” (Emphasis supplied.) GEICO subsequently revised and filed with the Commissioner on December 14, 1976 its “Maryland Reunderwriting Standards” with the expectation that the “guidelines will allow GEICO to renew substantially more policies than was possible under the previous standards.” The reunderwriting guidelines stated in pertinent part: “With the adoption of a Demerit system in Maryland, we must take a different reunderwriting approach to the treatment of accidents and violations.

Some previous undesirable risks become acceptable with Demerit rating, while some risks are not desirable even with a Demerit system. These latter risks are the ones to be identified and non-renewed or the named driver exclusion used. VIOLATIONS Individuals having the following violations within the 39 months[ 7 ] prior to expiration are to be considered undesirable and should be considered for non-renewal, if the only driver on the policy, or the named driver exclusion used: 9) three moving violations” ²⁰⁶ The Commissioner, on January 28,1977, by letter, granted his approval of GEICO’s modified automobile: insurance rates and classification procedures. The Franks became involved in this matter as the direct result of a questionnaire mailed to thém by GEICO on March 8, 1977.

The questionnaire concerned the policy of insurance issued on a 1976 Pontiac LeMans owned, as we have previously set forth, by Mr. and Mrs. Frank, but used exclusively by their son, Alan, age twenty-one (21), who did not live with his parents. Leonard Frank answered, signed, and returned the questionnaire to GEICO. Mr. Frank’s response indicated that no automobile accidents or violations had occurred. GEICO’s review, on March 22, 1977, of the driving record of Alan, as maintained by the Motor Vehicle Administration, revealed that Alan had, in fact, accumulated four (4) speeding tickets within the preceding two (2) years.

Three (3) of the violations were after he had completed a driver’s clinic. 8 A week later, GEICO wrote to the Franks by certified mail that: “You are hereby notified of the following action concerning your automobile insurance: (Action marked “X” applies) [x] Non-Renewal: This is notice this policy cannot be renewed and is terminated at 12:01 AM on May 22, 1977.” ²⁰⁷ Thereafter, in the form letter notice appears: “Reason(s) or explanation for the above action: Alan J. Frank’s driving record. His violations of: June 22, 1976 — speeding May 15, 1976 — exceed speed limit by 10 MPH April 2, 1976 — exceed speed limit by 10 MPH May 27, 1975 — exceed speed limit by 10 MPH” The Franks were advised by GEICO that they had a “right to protest ... [the] action and request a hearing thereon before the Commissioner ... within 15 days after receipt of this notice.” Mr. Frank exercised the right within two (2) days. The Commissioner, as we have already noted, directed GEICO to continue to insure the Franks’ Pontiac automobile and, thus, afford coverage to Alan. The question of the validity vel non of the notice of non-renewal was not raised in the administrative proceeding, nor was it addressed.

When GEICO’s appeal reached the Baltimore City Court, the Commissioner did inject the matter of an invalid non-renewal notice into the case. GEICO asserts that the intromission of the notice question before the trial court was improper, but we view it differently. We do so because Md. Ann. Code art. 48A, § 40 (4) provides: “Upon receipt of such transcripts and evidence [from the Commissioner] the court shall hear the matter de novo as soon as reasonably possible thereafter. Upon the 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.” Section 40 (5) of article 48A, the Insurance Code, permits the trial court to affirm, remand for further proceedings, reverse or modify the decision of the Commissioner.

The ²⁰⁸ Court of Appeals, in Nuger v. Insurance Comm’r, 238 Md. 55 , 207 A. 2d 619 (1965), made clear that Md. Ann. Code art. 48A, § 40 (4) and § 40 (5), must be read together. That reading, the Court said, means that additional evidence may be offered “as a matter of right” on appeal to the trial court, from the decision of the Commissioner. 238 Md. at 61 , 207 A. 2d at 622 . If, as here, the Commissioner could demonstrate to the trial court that the notice of non-renewal failed to comply with the statutory mandate of Md. Ann. Code art. 48A, § 240AA (b) (iii), there appears to be no reason why he could not raise the issue as an additional ground for the affirmance of his decision. We think that at that point the trial court could have remanded the matter to the Commissioner for the taking of further evidence or proceeded, as it did, de novo.

Moreover, the fact that the Commissioner raised the issue “one day prior to the actual hearing of the appeal before the Baltimore City Court” does not cause the issue to be stricken from consideration. GEICO could have requested a remand to the Commissioner for the purpose of taking testimony and a finding of fact thereon, or it could, as it did, proceed before the court and present evidence to refute the allegation. We perceive no error in Judge Thomas’s permitting the case to proceed before him with the additional issue being joined. With respect to cancellation or non-renewal of an automobile insurance policy, Md. Ann. Code art. 48A, § 240AA (b) (iii) 9 provides: “(b) ...

An insurer intending to take an action subject to the provisions of this section shall, on or before forty-five days prior to the proposed effective date of the action, send written notice by certified mail of its intended action to the insured at his last known address. The notice shall be in triplicate, and ²⁰⁹ shall state in clear and specific terms, on a form approved by the Commissioner: