Maryland Motor Truck Ass'n Workers' Compensation Self-Insurance Group v. Property & Casualty Insurance Guaranty Corp.

WILNER, J. With exceptions not relevant here, Maryland Code, § 9-402 of the Labor and Employment Article (LE), which is part of the Workers’ Compensation Law, requires every Maryland employer to secure workers’ compensation for its covered employees and lists six possible methods by which that obligation may be satisfied: (1) maintaining insurance with the Injured Workers’ Insurance Fund; (2) maintaining insurance with an authorized insurer; (3) participating in a governmental self-insurance group; (4) participating in a self-insurance group of private employers that meets the requirements of title 25, subtitle 3 of the Insurance Article (INS); (5) maintaining individual self-insurance in accordance with LE § 9-405; or ⁹⁰ (6) having a county board of education secure compensation under §§ 8-402(c) or 7-114(d) of the Education Article. In 1993, a number of Maryland trucking companies decided to use the fourth method — a private self-insurance group. In that year, the Maryland Motor Truck Association (MMTA), a nonprofit trade organization, established the Maryland Motor Truck Association Workers’ Compensation Self-Insurance Group (MMTA Group) for some of its members. In conformance with a regulation of the Insurance Commissioner, MMTA Group obtained a policy of excess insurance, for claims exceeding $150,000, from Reliance National Indemnity Company.

That policy was renewed from time to time and was in effect for the period from February, 1999 to June, 2000. During that period, four claims exceeding $150,000 were filed against member trucking companies that were part of the MMTA Group, and the excess amounts with respect to those claims were submitted by MMTA Group to Reliance. Because of financial difficulties, Reliance was unable to pay those amounts. In October, 2001, Reliance was declared insolvent by a Pennsylvania court and ordered to liquidate.

In light of that circumstance, MMTA Group filed a claim with the Property and Casualty Insurance Guaranty Corporation (PCIGC), an entity established by the General Assembly to provide for the payment of claims covered by policies of property or casualty insurance companies that become insolvent. PCIGC denied the claim on the ground that it was not a “covered claim,” as defined in INS § 9-301(d). In taking that position, PCIGC ultimately relied on § 9—301(d)(2)(i), which provides that “[cjovered claim” does not include an amount due an “insurer.” It asserted that MMTA Group was an “insurer,” within the meaning of that word as used in § 9-301(d)(2)(i). That is the issue before us.

The Circuit Court for Baltimore County, in a declaratory judgment and breach of contract action filed by MMTA Group against PCIGC, declared that MMTA Group was an “insurer” and granted PCIGC’s motion for summary judgment, whereupon MMTA .Group ⁹¹ appealed to the Court of Special Appeals. We granted certiorari on our own initiative prior to proceedings in the intermediate appellate court and shall affirm. BACKGROUND Self-Insurance Groups and MMTA Group As noted, LE § 9-402(a) permits employers to comply with the requirement of providing workers’ compensation to their covered employees by “participating in a self-insurance group of private employers that meets the requirements of Title 25, Subtitle 3 of the Insurance Article.” That authority is repeated in INS § 25-302. INS Title 25, subtitle 3 consists of §§ 25-301 through 25-308.

Those sections place these self-insurance groups under the jurisdiction of, and subject to extensive regulation by, the Insurance Commissioner. Section 25-303 requires the Insurance Commissioner to adopt regulations to implement the subtitle, regulations that must include, among other things: “(1) classifications of business and industries, based on the type of activity conducted ... within which employers may join together in self-insurance groups; (2) for each classification: (i) a minimum level of contribution of at least $250,000 in premiums collected from or pledged by the members of the group to a fund from which workers’ compensation claims will be paid; (ii) a minimum level of excess insurance coverage that must be obtained by each self-insurance group; (3) conditions under which contributions by members of a self-insurance group may be rebated or temporarily suspended; [and] (5) a requirement that the governance of the group be under the control of its members.” ⁹² Section 25-304(a) requires approval by the Commissioner before a self-insurance group may operate, and that includes approval of the self-insurance agreement. Section 25-306 requires approval by the Commissioner of any termination of a self-insurance agreement as well as any merger between two or more such groups. Section 25-307 permits the Commissioner to require actuarial studies and audits to determine the financial solvency of each group, to assess the group up to $500 to defray the cost of such reports and audits, and to require from a self-insurance group an annual report that may include payroll audit reports, summary loss reports, and quarterly financial statements.

Section 25-308 authorizes the Commissioner to impose on self-insurance groups a monetary penalty up to $10,000 for violations of the subtitle, to issue cease and desist orders to preclude those groups from engaging in practices that the Commissioner finds in violation of the subtitle, and to suspend or revoke the authority of the group to operate. Section 25-304(b) requires each self-insurance group to have combined assets of at least $1,000,000. Section 25-304(c) requires the group to pay all workers’ compensation benefits for which each member incurs liability during the period of membership. It makes each member jointly and severally liable for the workers’ compensation obligations of the group and its members that are incurred during its period of membership, and it provides that the joint and several liability continues even if an employer’s membership is terminated or cancelled.

In accord with these statutory provisions, the Insurance Commissioner has promulgated a set of regulations dealing with private self-insurance groups. They are found in COMAR 31.08.09. They prescribe the kinds of businesses that may form self-insurance groups (31.08.09.03); they specify the minimum “annual premium” that must be collected by the group from its members (31.08.09.04); they require each group to maintain excess insurance coverage of at least $1,000,000 per occurrence over a retention of $350,000 or less and set some requirements for excess insurance policies ⁹³ (31.08.09.06) ; and they provide detailed requirements for an application for certificate of authority to operate as a self-insurance group, including “a schedule for the collection of premiums,” procedures for handling disputes “regarding premium payments by member,” and “[p]roof of payment to the group by each member of not less than 25 percent of that member’s first year estimated annual net premium.” (31.08.09.07) . The regulations authorize the Commissioner to “make an examination of the affairs, transactions, records, and assets of any group as often as the Commissioner deems necessary to determine the group’s financial solvency.” (31.08.09.11).

They require each group to submit to the Commissioner an audited ' annual financial statement showing: “(1) Actuarial appropriate reserves for: (a) Known claims and expenses associated with them, (b) Claims incurred but not reported and expenses associated with them, (c) Unearned premiums, and (d) Bad debts, which reserves shall be shown as liabilities; [and] (2) An actuarial opinion regarding reserves for: (a) Known claims and expenses associated with them, and (b) Claims incurred but not reported and expenses associated with them[.]” (31.08.09.12). The MMTA Group was formed on July 1, 1993, with the execution of a Trust and Indemnity Agreement. The purpose of the Group, as stated in the Agreement, was to provide economical Workers’ Compensation and Employers’ Liability Insurance coverage for the Members of the Group, to reduce the amount and frequency of losses, and to do all necessary and proper things incident to the provision of Workers’ Compensation and Employers’ Liability Insurance in such manner as to be in the best interest of the Members of the Group. The Agreement created a trust, provided for its funding, ⁹⁴ operation, and governance, and set forth the obligations of the members of the group.

The trust was to be funded by “premiums” paid by the members of the Group in amounts established by the Board of Trustees. §§ 3.04, 3.05. Those premiums were to be placed into two separate funds created by the Agreement: a Trustees’ Fund, to deal with administrative costs, and a Claims Fund, for the purpose of paying claims and claim costs. § 5.02. The Group was required to defend, in the name and on behalf of its members, any claim, suit, or other proceeding instituted against the member on account of injuries or death covered by the Workers’ Compensation Law or Employers’ Liability, or otherwise asserting the member’s liability under the Workers’ Compensation Law. § 10.08. In the event of a deficit, the trustees were authorized to adopt a plan for elimination of the deficit, including an assessment on all members in the proportion which the contribution (annual premium) of each bears to the total contribution of all. § 5.05.

In the event of insolvency of the Group, each member was jointly and severally liable for the liabilities and obligations of all members. § 3.05(a). The calculation of premiums was provided for in the ByLaws of the Group. The aggregate premium needed was to be determined by the Board of Trustees. The premium for each member was to be determined by the Administrator, appointed by the trustees, based on the member’s loss experience for prior years.

In accordance with statutory and regulatory requirements and with § 5.06 of the Agreement, the trustees were required to obtain excess insurance in an amount not less than $1,000,000 over a retention of $250,000. Both the Agreement and the By-Laws permitted the trustees to employ a Service Company to handle claims made against the members and perform other administrative services. Article X, § 2 of the By-Laws provided, among other things, that the Service Company was to handle all claims after notice of injury was given, to prepare all required Workers’ Compensation forms, provide a defense if deemed ⁹⁵ appropriate, and negotiate with a member’s injured employee or the employee’s attorney. PCIGC and Self-Insurers’ Guaranty Fund Title 9 of the Insurance Article deals with insurance companies that are in financial difficulty.

In subtitle 3 of that title (INS §§ 9-301 through 9-316), the Legislature created and provided for the operation of PCIGC. The corporation is created by § 9-304 as a private, nonprofit, nonstock corporation. That section requires each authorized insurer that writes any kind of direct insurance not specifically excluded from the ambit of the statute to be a member of PCTGC. 1 Subject to certain conditions and limitations set forth in § 9-306, PCIGC is obligated to pay “covered claims,” including the full amount of any covered claim arising out of a workers’ compensation policy. In order to fulfill that obligation, PCIGC is required (1) to create separate accounts for title insurance, motor vehicle insurance, workers’ compensation insurance, and other insurance to which the subtitle applies and (2) to assess each of its members in the proportion that the member’s net direct written premiums for the preceding calendar year on the kinds of insurance covered by the appropriate account bears to the net direct written premiums of all member insurers for that year on those kinds of insurance.

PCIGC, as noted, is liable only for the payment of a “covered claim.” That term is defined generally in INS § 9- ⁹⁶ 301(d)(1) as including an insolvent insurer’s unpaid obligation that arises out of a policy of the insolvent insurer. There is no dispute that Reliance qualifies as an insolvent insurer for purposes of that definition. Section 9-301(d)(2), however, provides that “covered claim” does not include “an amount due to a reinsurer, insurer, insurance pool, or underwriting association, as a subrogation recovery or otherwise.” (Emphasis added). In addition to PCIGC, the Legislature created, as part of title 25, subtitle 3 of the Insurance Article, dealing with workers’ compensation self-insurance groups, the Self Insurers’ Guaranty Fund (SIGF).

Section 25-305 creates that Fund and provides for its administration by the Uninsured Employer’s Fund established by LE § 10-304. The purpose of SIGF is to pay outstanding obligations of a self-insurance group that becomes insolvent. Each self-insurance group is required to pay an assessment to SIGF “at the same level assessed against other workers’ compensation carriers by [PCIGC] under Title 9, Subtitle 3 of this article,” INS § 25-305(d), but, as the quid for that quo, self-insurance groups “[are] not liable for payments to [PCIGC],” § 25-305(a). DISCUSSION MMTA Group makes three points in support of its assertion that it is not an “insurer” for purposes of INS § 9-301(d)(2)(i).

First, relying on CSX v. Continental Insurance, 343 Md. 216 , 680 A.2d 1082 (1996) and cases from other States, it urges that, by definition, self-insurance is not insurance, and, since it is not insurance, a self-insurance group cannot be an insurer. That conclusion, it adds, is supported by the definition of “insurer” in INS § 1-101(v): “ ‘Insurer’ includes each person engaged as indemnitor, surety, or contractor in the business of entering into insurance contracts.” MMTA Group does not enter into “insurance contracts,” it says. Finally, it notes that there are two out-of-State decisions on this issue — one in Iowa (Iowa Cont. Wkrs’ Comp. v. Iowa Ins.

Guar., 437 N.W.2d 909 (Iowa 1989)), which is in its favor, and one in South Carolina (S.C. Prop. & Cas. v. Carolinas Roofing Fund, 315 S.C.555, ⁹⁷ 446 S.E.2d 422 (1994)), which is not — and it urges that we follow the Iowa approach and reject the South Carolina view. Not surprisingly, PCIGC finds the South Carolina case more relevant and persuasive and believes that it is more consistent with Maryland law. The issue is one of statutory construction — the meaning of the word “insurer” in INS § 9-301(d)(2)(i) — and our objective is therefore to determine whether the Legislature intended that word to include self-insurance groups formed under LE § 9-402(a)(4) and INS title 25,