Insurance Commissioner v. State Farm Fire & Casualty Co.

HOTTEN, J. This appeal arises from a consumer complaint filed by Reverend D.C. Washington with the Maryland Insurance Administration (“MIA”). MIA determined that appellee, State Farm Fire and Casualty Company, failed to notify Washington of an increase in his premium, and, therefore, violated the insurance laws of Maryland. Following a hearing, an Administrative Law Judge (“ALJ”) reversed MIA’s determination. MIA filed a petition for judicial review in the Circuit Court for Baltimore City.

The circuit court affirmed the ALJ’s decision. On appeal, the Insurance Commissioner for Maryland, appellant, presents the following questions for our review, which we quote: 1. Whether State Farm was required to comply with the procedural requirements of § 12-106 of the Maryland Insurance Article when State Farm attempted unilaterally to increase Washington’s premium, during the coverage term, after “discovering” during the underwriting period that the insured had been in several accidents despite the fact that he had fully disclosed these accidents on his insurance application? 2. Whether State Farm violated § 27-614 of the Insurance Article when it unilaterally increased Washington’s premium without providing him with the statutorily required 45-days written notice?

For the reasons outlined below, we shall affirm the decision of the circuit court. FACTUAL AND PROCEDURAL BACKGROUND On August 6, 2007, Washington met with a State Farm Mutual Automobile Insurance Company agent to obtain automobile and renter’s insurance. The application for automobile insurance listed a 2005 Hyundai Elantra and provided Washington’s vehicular accident history. The agent reviewed the ⁶⁰¹ application and determined, based on Washington’s accident history, that he was ineligible for coverage through State Farm Mutual Automobile Insurance Company.

However, Washington was eligible for coverage through a subsidiary, State Farm Fire and Casualty Company. The agent quoted Washington a premium rate of $1,401.46 for a six month policy. Washington accepted the quote and tendered an initial payment of $233.57. The agent then issued an insurance binder that stated, “[t]he Premium shown ... must be in compliance with the Company’s rules and rates and is subject to revision.” Both parties understood that an insurance policy would be issued at a later date.

The agent submitted Washington’s application to the company’s underwriting department. A comprehensive loss underwriting exchange (“CLUE”) report was generated and verified Washington’s disclosure of two accidents. After reviewing the CLUE report, it was determined that Washington was “negligent” or “at fault” for those accidents. Although Washington was eligible for coverage, 1 the agent had failed to consider the two accidents, and, thus, quoted an inaccurate premium rate.

Appellee’s underwriting guidelines provided that a 90% surcharge needed to be added to Washington’s base rate. Appel-lee thereafter issued a six month policy with a premium of $2,512.62 and retroactively charged Washington for the additional premium. On August 30, 2007, appellee received information that Washington may have been responsible for only one of the accidents. Appellee adjusted Washington’s premium because he was subject to a 30% surcharge with only one at-fault accident.

In the interim, Washington’s renter’s insurance was issued, which entitled him to a 10% multi-line discount. After both adjustments, the six month premium was retroactively reduced to $1,603.20, with monthly payments of $267.20. ⁶⁰² On October 24, 2007, Washington filed a complaint with MIA. In the complaint, Washington alleged that appellee “[r]aised premium without explanation & can’t give one. No notice given.” On September 19, 2008, following an investigation, MIA concluded that appellee failed to provide written notice of an increase in Washington’s premium at least 45 days before its effective date, and, therefore, violated Md.Code (2006 Repl.Vol., 2010 Supplement), § 27-614 of the Insurance Article (“Insur.”).

In its determination, MIA disallowed the premium increase, and noted that after appellee had verified Washington’s accident history, it had the option to cancel his insurance policy. On October 15, 2008, appellee challenged MIA’s determination and requested a hearing. MIA referred the case to the Office of Administrative Hearings (“OAH”) to issue “final findings of fact, final conclusions of law, and a final order.” MIA also requested that specific attention be directed to Insur. §§ 12-106 and 27-614. On May 1, 2009, MIA filed a motion for summary decision, asserting appellee failed to issue a notice of premium increase to Washington.

On May 7, 2009, a hearing was held and the ALJ noted that MIA had not timely filed its motion. In response, MIA requested that its motion be treated as a motion for judgment at the close of appellee’s case. During the hearing, appellee argued that it did not violate the insurance code because it could not cancel Washington’s insurance once it discovered the rating error. Appellee further explained that Washington was still eligible for coverage, albeit at an increased premium.

Appellee next argued that a binder was a separate contract from a policy and ceased to exist when the policy was issued. In that regard, appellee asserted that it was not required to follow the notice procedure of Insur. § 27-614 because the increase in premium was effective upon issuance of the policy. MIA contended that appellee should have provided Washington notice of the premium increase pursuant to Insur. § 27-614. MIA also argued that appellee should have canceled, and re-issued, Washington’s policy with the correct ⁶⁰³ premium since there was no mechanism set forth in Insur. § 12-106 to increase the premium.

On June 19, 2009, OAH concluded that Washington met appellee’s underwriting standards; therefore, upon discovering the error, appellee was obligated to adjust the premium to comply with its established rating plan. OAH also noted that there was no “increase in premium” because Insur. § 27-614 does not treat the terms “binder” and “policy” as synonymous. The decision further noted that the alternatives suggested by MIA were unlawful because, pursuant to Insur. § 27-216, appellee could not have provided notice to Washington and continued to collect incorrect premiums. On July 21, 2009, MIA filed a petition for judicial review in the Circuit Court for Baltimore City.

A hearing was held on February 22, 2010, and MIA argued that Washington should have been notified of the premium increase, or appellee should have canceled and reissued the policy with the correct premium. MIA further argued that the uncodified language of House Bill 760 (“HB 760”) demonstrates Insur. § 27-614 is applicable to binders because HB 760 created that section. 2 Appellee responded that the legislative language applied equally to Insur. §§ 27-618 and 27-614, and that there was no mention in Insur. § 27-614 of binders. Moreover, because Insur. § 27-613 referenced a specific type of binder, appellee argued that the legislative language did not dictate Insur. § 27-614 applied to binders. Appellee then argued that Washington was given notice of a possible change in his premium when he accepted the binder.

Appellee explained that Washington accepted the language in that contract indicating the premium was subject to change when he accepted the binder. At the conclusion of the hearing, the circuit court affirmed OAH’s decision. In its decision, because MIA failed to argue there was a violation of Insur. § 12-106, the court limited its ⁶⁰⁴ ruling to Insur. § 27-614, and found that the terms “binder” and “policy” were not interchangeable. The court noted that there was a “distinction to be considered by this court with respect to those terms[,]” and cited Flester v. The Ohio Casualty Ins.

Co., 269 Md. 544 , 307 A.2d 663 (1973), which held that a binder is a preliminary contract of insurance that gives temporary protection until the issuance of a formal policy. The court then concluded that there was no violation of Insur. § 27-614 because it applied to policies and not binders. Appellant noted an appeal to this Court. STANDARD OF REVIEW In Maryland Aviation Admin. v. Noland, 386 Md. 556, 571-72 , 873 A.2d 1145 (2005), Judge Eldridge outlined the proper standard for review of an adjudicatory decision by an administrative agency: A court’s role in reviewing an administrative agency adjudicatory decision is narrow; it “is limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.” In applying the substantial evidence test, a reviewing court decides “whether a reasoning mind reasonably could have reached the factual conclusion the agency reached.” A reviewing court should defer to the agency’s fact-finding and drawing of inferences if they are supported by the record.

A reviewing court “must review the agency’s decision in the light most favorable to it; ... the agency’s decision is prima facie correct and presumed valid, and ... it is the agency’s province to resolve conflicting evidence” and to draw inferences from that evidence. Despite some unfortunate language that has crept into a few of our opinions, a court’s task on review is not to “substitute its judgment for the expertise of those persons who constitute the administrative agency.” Even with regard to some legal issues, a degree of deference should ⁶⁰⁵ often be accorded the position of the administrative agency. Thus, an administrative agency’s interpretation and application of the statute which the agency administers should ordinarily be given considerable weight by reviewing courts. Furthermore, the expertise of the agency in its own field should be respected.

(quoting Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-69 , 729 A.2d 376 (1999)) (Internal citations and footnotes omitted); see also Hill v. Motor Vehicle Admin., 415 Md. 231, 239 , 999 A.2d 1019 (2010); Maryland Transp. Auth. v. King, 369 Md. 274, 288 , 799 A.2d 1246 (2002); Gigeous v. E. Corr. Inst., 363 Md. 481, 495 , 769 A.2d 912 (2001); Md.Code (2009 Repl.Vol.), § 10-222(h) of the State Government Article. DISCUSSION I. As a preliminary matter, we address appellant’s argument that the term “risk” includes the premium rate and, thus, Insur. § 12-106(d) requires cancellation when an underwriting investigation reveals that “the risk does not meet the underwriting standards of the insurer.” (Emphasis provided in brief).

Appellee argues that this issue was not preserved for appeal because appellant is raising a new issue. Moreover, appellee asserts that the issue was not preserved for review because MIA’s September 19, 2008 determination failed to render a finding that there was a violation of Insur. § 12-106(d), and MIA acknowledged before the circuit court that it was not alleging a violation of Insur. § 12-106. We agree with appellee and explain. In its September 19, 2008 determination, MIA found that appellee violated Insur. § 27-614(c).

MIA, however, did not find a violation of Insur. § 12-106(d). Instead, MIA noted that pursuant to Insur. § 12-106(d), appellee had “the option to cancel” Washington’s binder. (Emphasis added). During the February 22, 2010 hearing, MIA also conceded that appellee did not violate Insur. § 12-106(d). 3 In that regard, wheth ⁶⁰⁶ er there was a violation of Insur. § 12-106(d) was not preserved for review.

See Robinson v. State, 410 Md. 91, 106 , 976 A.2d 1072 (2009) (even arguments of constitutional dimensions, if not raised at trial, are not preserved for appellate review); Thomas v. Corso, 265 Md. 84, 108-09 , 288 A.2d 379 (1972) (an argument not raised in the court below is not preserved for appellate review); see also Kanaras v. State, 54 Md.App. 568 , 460 A.2d 61 (1983), rev’d on other grounds, State v. Kanaras, 357 Md. 170 , 742 A.2d 508 (1999) (appellant may not present a claim for the first time on appeal); C.S. Bowen Co. v. Maryland Nat’l Bank, 36 Md.App. 26, 35 , 373 A.2d 30 (1977) (an issue is properly before an appellate court only if it was properly presented to the trial court and decided by it in the first instance). Nevertheless, we note that an insurer is not required to cancel a binder or policy when an underwriting investigation reveals that the risk does not adhere to the underwriting standards of the insurer. Insur. § 12-106(d) provides that “[a]n insurer may cancel a binder or policy during the underwriting period if the risk does not meet the underwriting standards of the insurer.” (Emphasis added). The inclusion of the word “may” demonstrates that an insurer has discretion when deciding whether to cancel a binder or policy