Magan v. Medical Mutual Liability Insurance Society

⁵³⁸ McAULIFFE, Judge. Section 55A of the Insurance Code of this State 1 authorizes the Insurance Commissioner to impose certain sanctions upon an insurer whose certificate of authority is subject to revocation or suspension because of a violation of that Code. In lieu of or in addition to revocation or suspension, the Commissioner may impose a penalty of up to $50,000, and may require that restitution be made by such insurer to any person who has suffered financial injury or damage as a result of such violation. This case turns on the intent of the legislature in its use of the word “restitution.” Specifically, we must determine whether the legislature used that term in its historical sense of a remedy for unjust enrichment, or intended a broader meaning that would enable the Commissioner to award damages for all financial injuries shown to have been caused by the violation.

We hold, as did the Insurance Commissioner and the circuit court below, that the legislature intended the former meaning. I. This case has a rather difficult history. Michael O. Magan is a licensed physician in this State, specializing in obstetrics and gynecology. He purchased medical malpractice insurance from Medical Mutual Liability Insurance Society of Maryland (Medical Mutual) until August, 1984, when he became insured by Pacific Employers Insurance Company.

Pacific insured Dr. Magan only until July, 1985, when it ceased writing malpractice insurance in Maryland. Dr. Magan applied for coverage with Medical Mutual, but was only partially successful. Medical Mutual provided coverage for the doctor’s surgical and gynecological practice, but refused to provide obstetrics coverage, citing three claims against Dr. Magan based on occurrences in 1979 and 1980. Dr. Magan complained to the ⁵³⁹ Insurance Commissioner, alleging that Medical Mutual had engaged in an unfair trade practice by its discriminatory refusal to underwrite the requested coverage, in violation of § 234A. 2 A chief investigator for the Insurance Division made a preliminary finding that Medical Mutual had not violated § 234A by refusing to extend obstetrical coverage to Dr. Magan.

The doctor demanded a hearing before the Insurance Commissioner, and when his demand was not met, filed an appeal to the Circuit Court for Baltimore City. That court heard testimony and concluded that Medical Mutual had not acted pursuant to appropriate standards, and directed that it provide the requested coverage. Medical Mutual complied with the court order by providing obstetrical coverage to Dr. Magan effective 2 June 1986, but the Insurance Commissioner and Medical Mutual appealed the decision to the Court of Special Appeals. That Court affirmed the judgment of the circuit court.

Medical Mutual Liability Ins. v. Magan, 72 Md.App. 330 , 529 A.2d 841 (1987). We granted certiorari and vacated the judgment of the Court of Special Appeals, holding that the issue on appeal should have been limited to Dr. Magan’s right to a hearing before the Insurance Commissioner, a right we found to exist. Muhl v. Magan, 313 Md. 462 , 545 A.2d 1321 (1988). 3 The case was remanded to the Insurance Commissioner for hearing, and Medical Mutual voluntarily continued to provide full coverage to Dr. Magan. ⁵⁴⁰ When again before the Insurance Commissioner, Dr. Magan requested a determination that Medical Mutual had violated § 234A, and he requested restitution in accordance with § 55A(2). He claimed damages of $527,458 for the 10 months he was denied obstetrical insurance coverage, consisting of $377,180 lost income and $150,278 attorneys’ fees.

Medical Mutual “[i]n order to narrow the issue at hearing and more promptly resolve this lengthy dispute,” stipulated that its original underwriting decision “was inconsistent with Article 48A § 234A.” Brief for appellee, Medical Mutual, at 3. Accordingly, the sole issue before the Commissioner was Dr. Magan’s claim for restitution pursuant to § 55A(2) for Medical Mutual’s refusal to provide malpractice insurance for his obstetrical practice from 1 August 1985 to 2 June 1986. After a hill hearing, the Commissioner determined that Dr. Magan was not entitled to restitution under § 55A despite Medical Mutual’s admitted violation of § 234A, because there had been no unjust enrichment to Medical Mutual. The Commissioner further held that Dr. Magan was not entitled to attorneys’ fees because the legislature had not provided that remedy for a violation of § 234A The Circuit Court for Baltimore City affirmed the Commissioner, and Dr. Magan appealed to the Court of Special Appeals.

We granted the Insurance Commissioner’s petition for certiorari before the case was considered by the intermediate appellate court.

II

Subsection (2) was added to § 55A by chapter 755 of the 1971 Laws of Maryland, enacting Senate Bill 143. It is apparent from the language of the subsection as well as the title of the bill that the legislature was focusing on the concept of restitution. The new subsection authorized the Insurance Commissioner to “require that restitution be made by such insurer to any person who has suffered financial injury or damage as a result of such violation.” That portion of the title of the bill dealing with this change stated as its purpose: ⁵⁴¹ to add restitution to the remedies which the Commissioner may require; and to make the imposition of a penalty and the requirement for restitution additional as well as alternative to revocation or suspension. Restitution is probably most often thought of as a remedy to avoid unjust enrichment.

Section 1 of the Restatement of Restitution (1937) provides that: A person who has been unjustly enriched at the expense of another is required to make restitution to the other. In the introductory note to part I of the Restatement, after tracking the development of the law of quasi-contracts, the early use of equitable remedies, and the later reliance upon indebitatus assumpsit and the common counts, the authors state, at page 8: The action of general assumpsit was permitted in an increasing number of cases where a person had received “money or money’s worth” from or on account of another, and finally the generalization was made that the action would lie in all the cases where one had received or used something for which it was just that he should compensate another, the remedy being a money payment for the value of the thing given or the benefit received (see § 1). F.B. Ames, in his article, The History of Assumpsit, 2 Harv.L.R. 53 (1888), stated at 66: The equitable principle which lies at the foundation of the great bulk of quasi-contracts, namely, that one person shall not unjustly enrich himself at the expense of another, has established itself very gradually in the Common Law. More recently, Professor George Palmer wrote: Unjust enrichment is an indefinable idea in the same way that justice is indefinable.

But many of the meanings of justice are derived from a sense of injustice, and this is true of restitution since attention is centered on the prevention of injustice. Not all injustice but rather one special variety: the unjust enrichment of one person at the expense of another. This wide and imprecise idea has played a crea ⁵⁴² tive role in the development of an important branch of modern law. Palmer, The Law of Restitution, § 1.1, at 5 (1978) (footnote omitted).

Professor Graham Douthwaite introduces his book, Attorneys Guide to Restitution, (1977), with the Latin expression: Nemo debet locupletari ex aliena jadura (No one should be unjustly enriched at the expense of another). Professor Corbin contrasts the remedy of restitution with that of damages: The remedy of restitution differs from the remedy in damages in that in awarding damages the purpose is to put the injured party in as good a position as he would have occupied, had the contract been fully performed, while in enforcing restitution, the purpose is to require the wrongdoer to restore what he has received and thus tend to put the injured party in as good a position as that occupied by him before the contract was made. Ordinarily, restitution requires that the defendant shall give something back to the plaintiff; and it may be supposed that the defendant cannot do this unless he has received something of value at the plaintiffs hands. 5 Corbin on Contracts, § 1107, at 573 (1964) (footnote omitted). To the same effect, see Dan B. Dobbs, Handbook on the Law of Remedies, § 4.1, at 224 (1973): The restitution claim stands in flat contrast to the damages action in this respect.

The damages recovery is to compensate the plaintiff, and it pays him, theoretically, for his losses. The restitution claim, on the other hand, is not aimed at compensating the plaintiff, but at forcing the defendant to disgorge benefits that it would be unjust for him to keep. (Footnote omitted.) In Curtis v. Loether, 415 U.S. 189 , 94 S.Ct. 1005 , 39 L.Ed.2d 260 (1974), the question presented to the Court was whether a defendant in a federal district court was entitled to a jury trial when the plaintiff claimed actual and punitive damages, pursuant to statute, for an alleged violation of § 812 of the Civil Rights Act of 1968. Arguing that the defendant had no such ⁵⁴³ right, the plaintiff pointed out that federal courts of appeals had routinely denied jury trials while awarding back pay for violation of Title VII of the Civil Rights Act of 1964.

The Supreme Court distinguished a traditional claim for damages from one that was restitutory in character, commenting that “[i]n Title VII cases the courts of appeals have characterized backpay as an integral part of an equitable remedy, a form of restitution.” Id. at 197, 94 S.Ct. at 1010 . The Court went on to say: Nor is there any sense in which the award here can be viewed as requiring the defendant to disgorge funds wrongfully withheld from the plaintiff. Whatever may be the merit of the “equitable” characterization in Title VII cases, there is surely no basis for characterizing the award of compensatory and punitive damages here as equitable relief. Id.

(footnote omitted). In Plitt v. Greenberg, 242 Md. 359 , 219 A.2d 237 (1966), we said that appellant “does possess a colorable cause of action grounded on a theory of unjust enrichment or restitution” because “the law implies a debt “whenever the defendant has obtained possession of money which, in equity and good conscience, he ought not to be allowed to retain.’ ” Id. at 363-64 , 219 A.2d 237 , quoting in part from State, use, Emp. Sec. Bd. v. Rucker, 211 Md. 153, 158 , 126 A.2d 846 (1956). See also Schlosser v. INA, 325 Md. 301, 309-10 , 600 A.2d 836 (1992) (discussing the availability of restitution to prevent unjust enrichment or unjust detriment where an insured has incurred expenses to prevent loss that the insurer would have been required to indemnify).

As Dr. Magan points out, however, association of the word “restitution” with the remedy for unjust enrichment is not exclusive. A strong root of the word “restitution” is restoration, and when applied to the injured party rather than to the party gaining a benefit may mean restoring the injured party to the position enjoyed prior to loss or injury. The Municipal Court of Appeals for the District of Columbia accepted a broader interpretation of the term in deciding that a trial ⁵⁴⁴ judge properly imposed as a condition of probation in a criminal case a requirement that the defendant pay restitution of a specified amount representing the victim’s loss as a result of the defendant’s violation. The court said: Appellant argues that the condition of payment of the award was not an order of restitution, that restitution is limited to returning specific property, or its value, which has been taken from another, and that appellant had taken nothing from the employee.

Restitution, however, in its broad sense is not confined to the return of something of which one has been deprived, but is