Insurance Commissioner v. Property & Casualty Insurance

MURPHY, Chief Judge. This case involves claims for Personal Injury Protection (PIP) benefits filed by a number of individuals under policies issued to them by two now insolvent insurance companies. Minimum benefits of $2,500 for PIP coverage are required in every policy of motor vehicle liability insurance issued in Maryland. Coverage includes medical, hospital, wage loss, and disability benefits for the named insured and other designated persons injured in a motor vehicle accident; the benefits are payable without regard to fault, and ⁵²⁰ without regard to any collateral source of medical, hospital, or wage continuation benefits.

Maryland Code (1986 Repl. Vol.), Article 48A (the Insurance Code), §§ 539-540. In view of the insolvency of their own insurance companies, the claimants sought payment of their PIP claims from the Property and Casualty Insurance Guaranty Corporation (PCÍGC). They contended that under subtitle 33 of the Insurance Code, PCIGC was responsible to pay their PIP claims.

The Insurance Commissioner, agreeing with the claimants, directed PCIGC to make the PIP payments. PCIGC refused to do so and this litigation between it and the Insurance Commissioner ensued. The questions before us are essentially twofold. The first is whether the Insurance Commissioner has authority to order PCIGC to pay the claims; the second is whether the applicable Maryland statute requires a setoff of PIP benefits payable by PCIGC, acting in the stead of the claimants’ insolvent insurers, when, as here, the claimants recovered amounts well in excess of their PIP claims, pursuant to third party liability claims filed by them against tort-feasors insured by solvent insurance companies.

I Subtitle 33 of the Maryland Insurance Code is entitled “Property and Casualty Insurance Guaranty Corporation.” It contains sixteen sections, from §§ 504 through 519 of Article 48A; these sections relate to the organization, operations, duties, powers, and responsibilities of the PCIGC and are applicable to all kinds of direct insurance except life and health insurance and annuities. 1 Section 504 provides that the purpose of subtitle 33 is to “provide a mechanism for the prompt payment of covered claims under certain insurance policies and to avoid financial loss to residents of Maryland who are claimants or policyholders of an insurer ... which has become insolvent; ⁵²¹ and to provide for the assessment of the cost of such payments and protection among insurers.” (Emphasis supplied.) The term “covered claims” is defined (other than for surety bonds) in § 505(c)(1) to mean “obligations ... of an insolvent insurer which ... [a]rise out of the insurance policy contracts of the insolvent insurer issued to residents of this State or which are payable to residents of this State on behalf of insureds of the insolvent insurer.” Section 506 provides that PCIGC is a private, nonprofit, nonstock corporation. Subsection (b) provides that all insurers who write any kind of insurance to which subtitle 33 applies are members of PCIGC “as a condition of their authority to transact insurance in this State.” Subsection (c) requires that PCIGC establish a “plan of operation” and subsection (e) provides that it has all the powers, privileges, and immunities granted by the applicable provisions of the Corporations and Associations Article of the Maryland Code. Section 506(f) provides that PCIGC is not an agency or instrumentality of the State and that all its debts, claims, obligations, or liabilities are solely its own. Section 507 provides for a Board of Directors “elected from member insurers” pursuant to PCIGC’s plan of operation.

Section 508 invests PCIGC with duties and powers as therein delineated; these include being obligated “to the extent of the covered claims” in existence at designated times and within certain limits. Section 508(a)(2) provides that PCIGC shall “[b]e deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent.” Section 508(a)(4) authorizes PCIGC to pay “covered claims to the extent of [its] obligation and deny all other claims.” Section 509 requires that PCIGC submit to the Insurance Commissioner “a plan of operation ... necessary or suitable to assure the fair, reasonable, and equitable administration of the Corporation” which shall become effective upon the Insurance Commissioner’s written approval. Section 510 sets forth certain duties and powers of the Insurance Com ⁵²² missioner vis-a-vis the PCIGC. These include certain notifications to PCIGC concerning the existence of insolvent insurers, authorizing the Commissioner to suspend or revoke certificates of authority to transact insurance in this State of any member insurer which fails to pay its required assessment, or otherwise fine the erring member within specified limits.

This section also authorizes the Commissioner to reject the designation of any “servicing facility” utilized by the PCIGC “if he finds claims are being handled unsatisfactorily”; it further provides for judicial review of “[a]ny final action or order of the Commissioner under this subtitle.” Section 512(a) provides: “Any person having a covered claim against an insurer, including surety, under any provision in an insurance policy or surety bond, other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his right under such policy or bond. Any amount payable on a covered claim under this subtitle shall be reduced by the amount of any recovery under such insurance policy or surety bond.” Section 514 provides that PCIGC shall “be subject to examination and regulation by the [Insurance] Commissioner.” Finally, § 516 makes provision for recoupment of assessments paid by member insurers to PCIGC through rate and premium increases. 2 ⁵²³ II Upon PCIGC’s refusal to comply with the Insurance Commissioner’s order that it pay the claims in question, the Commissioner charged it with violating various provisions of the Insurance Code. A scheduled administrative hearing before the Commissioner was postponed when PCIGC filed a complaint for declaratory relief in the Circuit Court for Baltimore County in which it contended that the Commissioner lacked authority to require it to pay the PIP claims and that § 512(a) precluded it from paying the claims in any event. The circuit court (Levitz, J.) dismissed the complaint on August 11, 1986 without declaring the rights of the parties.

It said that because insurance practices and policies were involved, the more appropriate forum for resolution of the case was a hearing before the Insurance Commissioner. On August 25, 1986, an administrative hearing was held before the Insurance Commissioner. PCIGC maintained that under the provisions of subtitle 33 it possessed exclusive authority, independent of the Insurance Commissioner, over decisions concerning the payment of claims in the wake of an insurer insolvency. While recognizing that the Commissioner possessed express statutory authority with respect to some limited segments of its operations, PCIGC argued that he had no authority, express or implied, to insinuate himself in or substitute his judgment for that of the corporation in the matter of claim denials.

PCIGC thus contended that its decision not to pay the PIP claims was wholly beyond the reach of the Commissioner’s authority. It furthermore argued that it was the express purpose of § 512(a) to make up any shortfall that may exist after a claimant had exhausted all other avenues of recovery. Because the claimants had been paid for their damages well in excess of their PIP claims by solvent insurers of the negligent tort-feasors, PCIGC maintained that the claimants could not recover additional sums from it. PCIGC contended that its statutory purpose was not to place claimants in the same position that they would have occupied if an ⁵²⁴ insolvency had not occurred but rather to prevent out-of-pocket loss because of an insurer insolvency, ie., as set forth in § 504(a), to avoid financial loss to claimants or policyholders because of the insolvency of any insurer.

It was the clear intention of § 512(a), according to PCIGC, to prevent duplicative recoveries for the same damages. The Commissioner found that PCIGC had violated statutory duties imposed upon it under §§ 508(a) and 514 of the Insurance Code by not paying the PIP claims and that he was empowered to order PCIGC to pay the claims. As to PCIGC’s position that § 512(a) precluded its payment of the claims, the Commissioner, in relating that section to the circumstances of this case, said that the claimants “have no contractual right to file any claim against the tortfeasor’s insurer under the provision in an insurance policy. Rather, the tortfeasor alone has a claim against his insurance company if his insurance company wrongfully refuses to pay in his place for his negligent action.

It is clear that § 512 refers to contractual rights a claimant has under an insurance policy of his own, such as health or life insurance. It does not refer to civil tort rights of action which may ultimately be paid by some insurer as a result of another insurance policy, under which the claimant has no direct right of action. The Corporation may not require the instant claimants to exhaust a contract right which does not exist before the Corporation pays PIP benefits. “This construction of § 512 is consistent with a correct interpretation of § 539 and § 540. It is clearly the legislative intent that PIP benefits be paid without respect to fault.

The construction of § 512 advanced by the Corporation does offense to the clear intention of § 539 and § 540. It would result in a peculiar circumstance wherein insureds of insolvent insurance companies would receive PIP benefits only if the personal injury resulted from an action caused by themselves. Injuries caused by some other party would necessarily have to be recovered pursuant to an action brought against the alleged tortfeasor. ⁵²⁵ Moreover, § 540 provides that the payment of PIP benefits by an insurer shall not give that insurer a claim of recovery against any other person or insurer to recover any such benefits by reason of the alleged fault of such other person in causing or contributing to the accident. Therefore, the Corporation, which is nothing more than an association of all insurance companies, should not have a right that no single insurance company has under the PIP law.” (Emphasis in original.) The claimants, the Commissioner concluded, have a direct right to recover benefits only from insolvent insurers; the claimants have no direct right against any other insurer; and, consequently, “§ 512(a) requires claimants to exhaust first party contractual rights but not to exhaust third party claims.” (Emphasis in original.) 3 PCIGC appealed to the Circuit Court for Baltimore City, again asserting that the Commissioner was without authority to issue the order and that in any event he had incorrectly interpreted § 512(a).

The circuit court (Caplan, J.), on April 13, 1987, agreeing with PCIGC, reversed the Commissioner’s order. It found that the Commissioner had no legal authority to require PCIGC to pay claims and, moreover, that § 512(a) prohibited PCIGC from paying the claims. Upon the Commissioner’s appeal, we granted certiorari pri- or to decision by the Court of Special Appeals to consider the important issues raised in the case. Ill The Commissioner relies upon AS.

Abell Pub. Co. v. Mezzanote, 297 Md. 26 , 464 A.2d 1068 (1983) to support his argument that he possesses regulatory authority to require PCIGC to pay the PIP claims here in issue. That case held that MIGA, PCIGC’s predecessor, was a State agency for ⁵²⁶ the purpose of disclosures under Maryland’s Public Information Act. Nothing in that case concerning the relationship between MIGA and the Insurance Commissioner, however, has any relevant bearing on the extent of the Commissioner’s regulatory authority to require PCIGC to pay claims. 4 Of course, the fact that PCIGC is not a State agency does not mean that it is not subject to the Commissioner’s authority.

Indeed, the question is not whether PCIGC is a State agency but whether the legislature, in enacting the Insurance Code and subtitle 33 in particular, intended, subject to judicial review, to empower the Commissioner to order an insurance company, or an entity acting in place of an insurance company like PCIGC, to pay an entire class of disputed claims. The general powers and duties of the Commissioner are set forth in § 24 of the Insurance Code, which in pertinent part provides: “(1) The Commissioner shall enforce the provisions of this article, and shall execute the duties imposed upon him by this article. (2) The Commissioner shall have the powers and authority expressly conferred upon him by or reasonably implied from the provisions of this article.” Nowhere in the Insurance Code is the power to order PCIGC to pay claims expressly conferred upon the Commissioner. In particular, § 510, which enumerates the duties and powers of the Commissioner with respect to PCIGC, contains no such express authorization. 5 ⁵²⁷ As earlier observed, § 508(a)(2) provides that PCIGC shall “[b]e deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent.” PCIGC, therefore, stands in the shoes of the insolvent insurer.

It follows, we think, that if the Commissioner has authority to order an insurer to pay a claim, he retains this authority with respect to PCIGC claims when, because of the insurer’s insolvency, it assumes the insurer’s duties and obligations. Under certain circumstances, the Commissioner does have authority to order an insurer to