Kaser v. Financial Protection Marketing, Inc.

ELDRIDGE, J. This is a Certified Question case pursuant to the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 2002 Repl.Vol.), §§ 12-601 through 12-613 of the Courts and Judicial Proceedings Article and Maryland Rule 8- ⁶²³ 305. 1 The United States District Court for the District of Maryland has certified a question concerning the tort of ■wrongful interference with business relationships. The certified question of Maryland law is as follows: “Does an insurance subagent (or broker) have an economic relationship with his client, the insured, separate from the insurance policy issued to the client, with which the insurer or the insurer’s agent can interfere?” Our answer to the question shall be “no.” I. The relevant facts are set forth in the United States District Court’s Certification Order and the amended complaint which was incorporated into the Certification Order. They are, in pertinent part, as follows: “This is a diversity case, in which the plaintiff, an insurance agent and broker, seeks relief from the defendants, marketers of insurance, for alleged tortious interference with the economic relationship between himself and his client, who had been issued an insurance policy through the defendants. “Given the fact that this case presents a novel question of state law which is determinative of the cause, this Court deemed it appropriate for certification to the Court of Appeals of Maryland____ The facts to be stated ... are those set out in the preceding paragraph, as well as the allegations of the plaintiffs complaint, given that the question of law presents itself in the context of a motion to dismiss, when all facts alleged in the complaint must be taken as true. (A copy of all relevant portions of the complaint is annexed hereto and incorporated herein by reference.) ⁶²⁴ “For the purpose of this certification, the Court designates the plaintiff as appellant and the defendant as appel-lees. “Richard M. Kaser, Plaintiff, ... files this Amended Complaint against Protective Life Insurance Company, Financial Protection Marketing, Inc., James E. Hughes, and Insurance Investment Corporation, Inc., Defendants, and states: “2.

Plaintiff is an individual who resides and works in Baltimore County, Maryland. Kaser is an insurance agent and is licensed by the Maryland Insurance Administration. “3. Defendant Protective Life Insurance Company (‘PLIC’) is a stock life insurance company that has its principal place of business in Birmingham, Alabama. * * * PLIC is licensed by the Maryland Insurance Administration to provide insurance services in the State of Maryland. “4. Financial Protection Marketing, Inc. (‘FPM’) is a corporation which was formerly located in Indianapolis, Indiana.

FPM was a wholly owned and controlled subsidiary of PLIC and was consolidated into PLIC’s Financial Institution Division. * * * FPM is a licensed agent with the Maryland Insurance Administration. “5. Defendant James E. Hughes (‘Hughes’) is an individual who, upon information and belief, resides in Del Ray, Florida. Mr. Hughes is licensed as an agent within the State of Maryland by the Maryland Insurance Administration. At all times relevant hereto, Mr. Hughes was the President of FPM and Insurance Investment Corp. (‘IIC’).... “7.

Kaser is an independent insurance agent and broker who is in the business of procuring insurance for business clients, selling insurance, and matching businesses seeking insurance with businesses selling insurance. Kaser receives ⁶²⁵ a fee or commission as consideration for performing these services. “8. At all times relevant hereto, Chevy Chase Bank was and is involved in the business of lending money to persons who purchase automobiles under a special program (the ‘Program’) that allows them to pay only for the portion of the vehicle that they use. “9. A borrower who subscribes to the Program has several options at the end of the Program, including returning the vehicle to the dealer, who then sells it to a willing buyer. “10.

If the loan balance of a returned vehicle exceeds the residual value of the vehicle at the time of sale, the lender will lose money. “11. Insurers learned of these losses and began to market residual value insurance that is intended to protect a lender such as Chevy Chase Bank from such losses. “12. Kaser has been involved in marketing residual value insurance across the country since the earliest development of the product, and had previously acted as an insurance agent for other Chevy Chase Bank interests. “13. In late 1998 or early 1999, Chevy Chase Bank executives contacted Kaser and asked him to locate residual value insurance to benefit the Bank.” “14.

Kaser knew that FPM marketed residual value insurance to other lenders. FPM was wholly owned and controlled by PLIC. Kaser also knew that PLIC underwrote and marketed residual value insurance through its umbrella of companies. “15. Kaser contacted FPM executives and discussed the possibility of matching FPM with Chevy Chase Bank. “18.

In December 1999, a residual value insurance master policy was issued to Chevy Chase Bank through FPM by Interstate Fire and Casualty Co. * * * ⁶²⁶ “19. On December 13,1999, to coincide with the issuance of the Chevy Chase Bank residual value insurance master policy, Kaser entered into a Guaranteed Residual Investment Protection General Agent Agreement (the ‘Agreement’) with FPM. Pursuant to the Agreement, FPM designated Kaser as ‘its General Agent for its insurance carrier’ and promised to pay him a service fee in the amount of seven and one-half [percent] (7.5%) of the net written premiums arising out of residual value policies, such as the one issued to Chevy Chase Bank. Hughes negotiated, drafted, and executed the Agreement on behalf of FPM. “23.

Upon information and belief, in September 2000, PLIC notified Hughes that he would be terminated effective January 1, 2001. Thereafter, with PLIC’s blessing and encouragement, Hughes began to contact policyholders in an effort to have him named as agent of record, thereby entitling him to commissions. Chevy Chase Bank is one of the policyholders that he contacted. “24. In and before December 2000, and unbeknownst to Kaser, Hughes contacted Larry Cain (‘Cain’), Senior Vice President at Chevy Chase Bank, and solicited an appointment as agent of record on the account.

Hughes’ solicitation efforts involved making false and misleading statements about himself and Kaser.... “26. ... [0]n December 15, 2000, Hughes drafted a notice of termination of Agreement with Kaser. In the letter, Hughes advised Kaser that he had received an Agent of Record letter from Chevy Chase Bank changing the Agent of Record to IIC, but Hughes intentionally failed to disclose that he was the President of IIC and that no such Agent of Record letter was received by FPM. Hughes did not send this letter to Kaser until January 3, 2001, after he had ceased working for FPM. * * * ⁶²⁷ “28. Kaser received the December 15, 2000, termination letter from Hughes shortly thereafter.

When he confronted PLIC, it denied receipt of an Agent of Record letter---- “29.... Hughes drafted an Agent of Record letter for Chevy Chase Bank appointing himself and IIC as Agent of Record for Chevy Chase Bank. On January 18, 2001, Chevy Chase Bank executed the letter and forwarded it to PLIC. “30.... PLIC then entered into an Agency Agreement with Hughes and IIC wherein it agreed to pay him a service fee of seventeen percent (17%) of the net written premiums on the Chevy Chase Bank account.

This fee was approximately three times the fee that PLIC was paying to Kaser, yet Hughes was not expected to perform any services. “33. Hughes left the employ of PLIC and FPM on January 1, 2001.” In two subsequent counts in the amended complaint, the plaintiff Kaser alleged that both FPM and PLIC committed tortious interference with the plaintiffs economic relationship with Chevy Chase Bank. It was alleged in one of these counts that, “[a]t all times relevant hereto, Hughes’s actions were committed while an employee of FPM and within the scope of his employment. Further, FPM ratified Hughes’s actions and conduct with full knowledge of all material facts about his actions and conduct.” The other count contained identical allegations with respect to PLIC.

These are the counts giving rise to the certified question.

II

Maryland has long recognized the tort of interference with contractual or business relationships. See, e.g., Medical Mutual v. B. Dixon Evander and Associates, 339 Md. 41 , 660 A.2d 433 (1995); Alexander & Alexander, Inc. v. B. Dixon Evander and Associates, 336 Md. 635 , 650 A.2d 260 (1994); Macklin v. Robert Logan Assocs., 334 Md. 287 , 639 A.2d 112 (1994); Travelers Indem. Co. v. Merling, 326 Md. 329 , 605 A.2d 83 , cert. denied, 506 U.S. 975 , 113 S.Ct. 465 , 121 L.Ed.2d ⁶²⁸ 373 (1992); K&K Management v. Lee, 316 Md. 137 , 557 A.2d 965 (1989); Sharrow v. State Farm Mut. Auto.

Ins. Co., 306 Md. 754 , 511 A.2d 492 (1986); Vane v. Nocella, 303 Md. 362 , 383 n. 6, 494 A.2d 181 , 192 n. 6 (1985); Natural Design, Inc. v. Rouse Co., 302 Md. 47 , 485 A.2d 663 (1984); Wilmington Trust Co. v. Clark, 289 Md. 313 , 424 A.2d 744 (1981); Beane v. McMullen, 265 Md. 585, 603 , 291 A.2d 37, 46-47 (1972); McCarter v. Baltimore Chamber of Commerce, 126 Md. 131, 136 , 94 A. 541, 542 (1915); Sumwalt Ice & Coal Co. v. Knickerbocker Ice Co., 114 Md. 403 , 80 A. 48 (1911); Willner v. Silverman, 109 Md. 341 , 71 A. 962 (1909); Knickerbocker Ice Co. v. Gardiner Dairy Co., 107 Md. 556 , 69 A. 405 (1908). In Natural Design, Inc. v. Rouse Co., supra, 302 Md. at 69 , 485 A.2d at 674 , we explained that “the two general types of tort actions for interference with business relationships are inducing the breach of an existing contract and, more broadly, maliciously or wrongfully interfering with economic relationships in the absence of a breach of contract. The principle underlying both forms of the tort is the same: under certain circumstances, a party is liable if he interferes with and damages another in his business or occupation.” The present case does not involve an allegation of wrongful interference with any one specific contract.

Instead, the plaintiff Kaser complains of FPM and PLIC’s alleged wrongful interference with the ongoing business relationship between Kaser and Chevy Chase Bank. Almost one hundred years ago, this Court in Willner v. Silverman, supra, 109 Md. at 355 , 71 A. at 964 , cited with approval the case of Walker v. Cronin, 107 Mass. 555, 562 (1871), decided by the Supreme Judicial Court of Massachusetts, and held that the elements required to establish the tort of wrongful interference with contractual or business relations are as follows: “ ‘(1) intentional and wilful acts; (2) calculated to cause damage to the plaintiffs in their lawful business; (3) done with the unlawful purpose to cause such damage and loss, ⁶²⁹ without right or justifiable cause on the part of the defendants (which constitutes malice); and (4) actual damage and loss resulting.’ ” 2 See also Alexander v. Evander, supra, 336 Md. at 652 , 650 A.2d at 268-269 ; K & K Management v. Lee, supra, 316 Md. at 160 , 557 A.2d at 973 ; Natural Design, Inc. v. Rouse Co., supra, 302 Md. at 71 , 485 A.2d at 675 . Furthermore, “this Court has refused to adopt any theory of tortious interference with contract or with economic relations that ‘converts a breach of contract into an intentional tort.’ ” Alexander v. Evander, supra, 336 Md. at 654 , 650 A.2d at 269-270 , quoting K & K Management v. Lee, supra, 316 Md. at 169 , 557 A.2d at 981 . See also Alexander v. Evander, supra, 336 Md. at 657 , 650 A.2d at 271 (“wrongful or malicious interference with economic relations is interference by conduct that is independently wrongful or unlawful, quite apart from its effect on the plaintiffs business relationships”); Macklin v. Robert Logan Assocs., supra, 334 Md. at 301 , 639 A.2d at 119 (“To establish tortious interference with prospective contractual relations, it is necessary to prove both a tortious intent and improper or wrongful conduct”); Travelers Indemnity v. Merling, supra, 326 Md. at 343 , 605 A.2d at 90 (“For one to recover for tortious interference with contractual or economic relations, the interference must have been wrongful or unlawful”).

In addition, “to establish causation in a wrongful interference action, the plaintiff must prove that the defendant’s wrongful or unlawful act caused the destruction of the business relationship which was the target of the interference.” Medical Mutual v. Evander, supra, 339 Md. at 54 , 660 A.2d at 439 . See Alexander v. Evander, supra, 336 Md. at 652 , 650 A.2d at 269 ; Macklin v. Robert Logan Assocs., supra, 334 Md. at 301-302 , 639 A.2d at 119 (“to be actionable, the improper or wrongful conduct must induce the breach or termination of the ⁶³⁰ contract”); K & K Management v. Lee, supra, 316 Md. at 155 , 557 A.2d at 973 . Turning to the issue in the case at bar, this Court has consistently taken the position that the tort of wrongful interference with economic relations will not lie where the defendant is a party to the economic relationship with which the defendant has allegedly interfered. Alexander v. Evander, supra, 336 Md. at 646 n. 8, 650 A.2d at 265 n. 8 (“[A] party to contractual relations cannot be liable for the interference tort based on those contractual relations.

The tort is aimed at the person who interferes with the contract, and not at one of the contracting parties”); Travelers Indemnity v. Merling, supra, 326 Md. at 343 , 605 A.2d at 89 (“For the tort to lie, the defendant tortfeasor cannot be a party to the contractual or economic relations with which he has allegedly interfered”); K & K Management v. Lee, supra, 316 Md. at 154-156 , 557 A.2d at 973-974 ; Natural Design, Inc. v. Rouse Co., supra, 302 Md. at 69 , 485 A.2d at 674 ; Wilmington Trust Co. v. Clark, supra, 289 Md. at 329 , 424 A.2d at 754 (“we have never permitted recovery for the tort of intentional interference with a contract when both the defendant and the plaintiff were parties to the contract. Indeed, it is accepted that there is no cause of action for interference with a contract when suit is brought against a party to the contract”). See also Medical Mutual v. Evander, supra, 339 Md. at 58 , 660 A.2d at 441 (concurring opinion) (“It is well established in Maryland that the tort of wrongful interference with contract or economic relationships does not lie where the defendant is a party to the contract or economic relationship allegedly interfered with”). The requirement that the defendant not be a party to the contract or business relations is traceable to the first case recognizing the tort of intentional interference with contract, the seminal English case of Lumley v. Gye [1853] 2 El. & Bl. 216, 118 Eng.

Rep. 749, 22 L.J.Q.B. 463 . In Lumley, the defendant persuaded an opera singer to breach her contract with the plaintiffs theater in order to perform at his theater instead. The plaintiff clearly had a breach of contract action against the opera singer; however he had no previously ⁶³¹ recognized claim against the party who induced the breach. Nevertheless, a divided court recognized that the plaintiff had a cause of action against the third-party theater owner for intentional interference with contract.

Relying upon Lumley, this Court first recognized a cause of action for “wrongful interference with business relations” in the companion cases of Knickerbocker Ice Co. v. Gardiner Dairy Co., supra, 107 Md. 556 , 69 A. 405 , and Sumwalt Ice & Coal Co. v. Knickerbocker Ice Co., supra, 114 Md. 403 , 80 A. 48 . These cases presented the classic three-party model required in tortious interference cases. In the Gardiner Dairy and Sumwalt Ice cases, Knickerbocker Ice Co. entered into a contract to sell ice to the Sumwalt Company, an ice wholesaler, for $ 2.25 per ton. The contract also provided that Sumwalt “would not ... interfere with the customers or trade” of the Knickerbocker Company.

Subsequently, Sumwalt contracted to sell ice to the Gardiner Dairy Company, a retailer, at $ 5.00 per ton. Knickerbocker subsequently threatened to withhold all future deliveries of ice from Sumwalt if it continued to sell ice to Gardiner Dairy. Since there were few other ice manufacturers in the area, Sumwalt took heed of the threat and broke its contract with Gardiner Dairy, causing the retailer to purchase its ice directly from Knickerbocker at a higher price. Gardiner Dairy sued Knickerbocker for intentionally interfering with the retailer’s contract with Sumwalt.

This Court decided that Knickerbocker could be held liable in tort to Gardiner Dairy. See Gard-iner Dairy, supra, 107 Md. at 568 , 69 A. at 409 . Three years later, in the Sumwalt Ice case, the Court held that the Sumwalt Company could also sue Knickerbocker for the same act of interference, since Sumwalt was also damaged by Knickerbocker’s improper conduct which induced the breach of the contract between Sumwalt and Gardiner Dairy. See Sumwalt Ice, supra, 114 Md. at 416-418 , 80 A. at 50-51 .

In both of these companion cases, the parties to the contract being interfered with were Sumwalt and Gardiner Dairy, and the “interferer” was Knickerbocker. In the Gardiner Dairy ⁶³² case, the buyer’s