Magan v. Medical Mutual Liability Insurance Society

ROSALYN B. BELL, Judge. This case presents the question of whether an individual aggrieved by an insurer’s violation of Md.Code Ann. Art. 48A (1957, 1986 Repl.Vol., 1989 Cum.Supp.), (Maryland Insurance Code) can maintain, in addition to the statutory remedy, a tort action for damages in the circuit court based upon the same issues advanced in the administrative proceedings. We hold that the individual is limited to the remedy provided in the Maryland Insurance Code. Before we explain our answer, we will first discuss how this issue arose. 1 In August of 1985, Dr. Michael O. Magan applied to Medical Mutual Liability Society of Maryland for malpractice insurance coverage for his obstetric and gynecology practice.

Medical Mutual, however, refused to issue a policy, citing three claims against Dr. Magan in 1979 and 1980. Dr. Magan filed a complaint with the Insurance Commissioner (Commissioner), alleging that Medical Mutual was required to provide him insurance coverage and its ³⁰⁴ refusal violated the Maryland Insurance Code, Md.Code Ann. Art. 48A, § 234A (1957, 1986 Repl.Vol., 1989 Cum. Supp.). 2 In November of 1985, Dr. Magan requested a hearing before the Commissioner pursuant to Md.Code Ann. Art. 48A, § 35(2) (1957, 1986 Repl.Vol.). When the Commissioner failed to grant a hearing within 30 days pursuant to § 35(3), Dr. Magan appealed the failure to grant a hearing to the Circuit Court for Baltimore City.

The trial judge found in favor of Dr. Magan and remanded the matter to the Commissioner for the purpose of ordering Medical Mutual to issue a policy of professional medical liability insurance to Dr. Magan. Medical Mutual and the Commissioner appealed the trial court’s decision and we affirmed. Medical Mutual Liability Ins. Society of Md. v. Magan, 72 Md.App. 330 , 529 A.2d 841 (1987).

The Court of Appeals granted certiorari, vacated our decision and remanded the case to the Commissioner for a hearing. Muhl v. Magan, 313 Md. 462 , 545 A.2d 1321 (1988). In so holding, that Court stated that the trial court should have confined its inquiry to the issue of Dr. Magan’s entitlement to a preliminary hearing before the Commissioner and should not have decided the merits of the case before administrative remedies were exhausted. Muhl, 313 Md. at 479-80 , 545 A.2d 1321 .

In November of 1988, a hearing was held before an examiner of the State insurance division. The purpose of the hearing was to determine whether Dr. Magan’s complaint was moot since Medical Mutual had since provided ³⁰⁵ insurance coverage to him. The Commissioner subsequently approved the recommendations of the hearing examiner which stated that Medical Mutual’s refusal to issue a policy was moot since a policy was issued and still in force at the time of the hearing. The hearing examiner further recommended that the Commissioner grant Dr. Magan a hearing on whether Medical Mutual violated § 234A and whether restitution should be ordered pursuant to Md.Code Ann. Art. 48A, § 55A (1957, 1986 Repl.Vol.). 3 A hearing was scheduled for April 17-19, 1989.

In August of 1988, while Medical Mutual’s appeal was pending before the Court of Appeals, Dr. Magan and his wife, Mary Ann Magan, 4 filed a complaint in the Circuit Court for Baltimore City against Medical Mutual and its officers and directors which is the subject of the instant case. In his complaint, Dr. Magan alleged that (1) Medical Mutual had breached its duty to insure licensed physicians in Maryland by denying his application for insurance; and (2) Medical Mutual had intentionally violated the trial court’s order to insure Dr. Magan at standard rates by seeking to impose a surcharge on him. The complaint sought compensatory and punitive damages. The trial court dismissed the complaint on the basis that Dr. Magan had failed to exhaust his administrative remedies and thus the trial court lacked subject matter jurisdiction.

It is from this decision that Dr. Magan appeals. Since we hold that the trial judge properly dismissed the complaint, we do not address Dr. Magan’s allegations that ³⁰⁶ Medical Mutual breached its duty to insure him and intentionally violated a court order by seeking to impose a surcharge. EXHAUSTION OF ADMINISTRATIVE REMEDIES Generally, the rule in Maryland is that, where a statute provides a special form of remedy, the complainant must use that form and must not bypass the administrative body by pursuing other remedies. Prince George’s County v. Blumberg, 288 Md. 275, 284 , 418 A.2d 1155 (1980), cert. denied, 449 U.S. 1083 , 101 S.Ct. 869 , 66 L.Ed.2d 808 (1981).

There are, however, recognized exceptions to the administrative exhaustion of remedies rule. Those generally cited are: “1. When the legislative body has indicated an intention that exhaustion of administrative remedies was not a precondition to the institution of normal judicial action. “2. When there is a direct attack, constitutional or otherwise, upon the power or authority (including whether it was validly enacted) of the legislative body to pass the legislation from which relief is sought, as contrasted with a constitutional or other type issue that goes to the application of a general statute to a particular situation. “3.

When an agency requires a party to follow, in a manner and to a degree that is significant, an unauthorized procedure. “4. Where the administrative agency cannot provide to any substantial degree a remedy. “5. When the object of, as well as the issues presented by, a judicial proceeding only tangentially or incidentally concern matters which the administrative agency was legislatively created to solve, and do not, in any meaningful way, call for or involve applications of its expertise.” Blumberg, 288 Md. at 284-85 , 418 A.2d 1155 (citations omitted). In Secretary, Maryland Department of Human Resources v. Wilson, 286 Md. 639 , 409 A.2d 713 (1979), the ³⁰⁷ Court of Appeals explained the public policy behind the exhaustion of administrative remedies rule.

The Court said: “Thus, this Court recognized that when the Legislature enacts a comprehensive remedial scheme in which a claim is to be determined by an administrative agency and reviewed in an administrative appeal before judicial review is available, it establishes, as public policy, that such a procedure produces the most efficient and effective results. In order to effectuate this public policy, trial courts generally should not act until there has been compliance with the statutory comprehensive remedial scheme.” Wilson, 286 Md. at 645 , 409 A.2d 713 (citations omitted). In the instant case, the complaint, filed in the circuit court, was grounded upon Medical Mutual’s refusal to underwrite Magan, an alleged violation of the Maryland Insurance Code. 5 The Insurance Code provides a comprehensive administrative structure and establishes a uniform method of appeal for an individual aggrieved by an insurer’s violation of the Maryland Insurance Code, Md.Code Ann. Art. 48A (1957, 1986 Repl.Vol., 1989 Cum.Supp.). Article 48A, § 24 deals specifically with the powers and duties of the Commissioner.

Under § 24(3), the Commissioner may conduct an investigation to determine whether an insurance company is acting in compliance with the Maryland Insurance Code. As part of this investigation, § 27 empowers the Commissioner to subpoena witnesses, administer oaths and compel production of evidence. The Commissioner may conduct a hearing on the matter upon the written demand by an aggrieved person. § 35(2). If ³⁰⁸ the Commissioner finds that a violation of Art. 48A has occurred, the Commissioner may revoke or suspend the insurer’s license to do business in Maryland. § 55.

In lieu of or in addition to this remedy, the Commissioner may impose a penalty of up to $50,000 for each violation and require that restitution be made by the insurer to any person who has suffered financial injury or damage as a result of the violation. § 55A. A party who is not satisfied with the results of the hearing before the Commissioner may appeal to the circuit court. § 40(1). On review, the circuit court conducts a de novo hearing and must consider the evidence in the record together with any additional evidence as may be offered by any party to the appeal. § 40(4). An appeal from a judgment of the circuit court to this Court by the aggrieved party is provided in § 40(7).

Here, Magan attempts to circumvent these administrative procedures by pursuing a separate claim for damages in the circuit court. Magan maintains that he can do this because his claim sounds in tort. This argument fails, however, since the factual predicate for his tort claims is founded on a statutory violation which carries with it a statutory remedy. In essence, what Magan is attempting to do is supplement his statutory remedy for damages by pursuing an action for tort damages in the circuit court.

In order for Magan to maintain a separate action in the circuit court, he must pursue a recognized alternate remedy under common law principles. See White v. Prince George’s County, 282 Md. 641, 650-51 , 387 A.2d 260 (1978). With respect to the instant case, no common law cause of action exists to recover damages for an insurer’s refusal to underwrite an insured. Edelstein v. Nationwide Mutual Ins.

Co., 252 Md. 455, 461 , 250 A.2d 241 (1969) (an insurance company has the unqualified right to select the risks it considers profitable to insure and the r,company is under no obligation to accept an application written by its agent or broker); American Casualty Co. v. Ricas, 179 Md. 627, 634 , 22 A.2d 484 (1941) (insurances companies are not compelled to accept every application presented). Since ³⁰⁹ the only underwriting obligation that exists is statutory, Magan’s remedy is limited to § 55A. The resolution of the damages issue under § 55A is now pending before the Commissioner. Magan cannot also maintain an action for damages based on the same violation in a different forum.

Here, the statute provides a remedy and a procedure to follow. Thus, Magan must await the exhaustion of these remedies and, if he is unsuccessful, he may exercise the right to appeal the administrative action. Magan further contends that § 55A is not an exclusive remedy since it is overly broad and vague and does not set out a precise mechanism to litigate tort claim damages flowing from violations of the Maryland Insurance Code. Magan claims that ordinarily statutory remedies which are treated as exclusive contain precise mechanisms to follow when a statute is violated.

Thus, Magan concludes, by passing broad legislation, the Legislature did not intend § 55A to be an exclusive remedy. In determining whether the Legislature intended the remedy provided by the Maryland Insurance