Miller v. Insurance Commissioner

POLLITT, Judge. This is an appeal from a judgment of the Circuit Court for Baltimore City (Bothe, J.) affirming the order of the State Insurance Commissioner of Maryland. On October 15, 1985, General Accident Insurance Company of America (General Accident) notified Gerald A. Miller, M.D., that his professional liability insurance policy with ³⁵⁷ General Accident would be cancelled as of December 4, 1985. 1 On November 27,1985, Dr. Miller requested that the Insurance Commissioner investigate that cancellation, pursuant to § 234A. 2 After investigation the Commissioner determined, without a hearing, that the cancellation was not in violation of any provisions of the Maryland Insurance Code. Pursuant to § 40(1), Dr. Miller appealed that decision to the Circuit Court for Baltimore City and, at the same time, moved for a stay of the Commissioner’s decision, pursuant to § 40(2).

On April 8, 1986, Judge Bothe denied the stay and affirmed the Commissioner. From that judgment, Dr. Miller appeals to this Court. The appellant, Dr. Miller, and the appellees, General Accident and the Commissioner, each state the questions presented in varying form, reflecting their respective positions, but we perceive them to be substantially as follows: I. Whether the Commissioner correctly determined that General Accident was justified in cancelling Dr. Miller’s policy on the grounds of fraud and misrepresentation in the application for the policy without further evidence of standards reasonably related to General Accident’s economic and business purposes?

II

Whether General Accident was estopped from cancel-ling Dr. Miller’s policy by its knowledge of the misrepresentations prior to the latest renewal of the policy? Facts In August of 1982, Dr. Miller obtained professional liability insurance with General Accident. He previously had ³⁵⁸ been insured by the Medical Mutual Liability Insurance Society of Maryland but had terminated that insurance after a dispute with Medical Mutual over a malpractice claim which resulted in a verdict against him for $500,000, including $200,000 in punitive damages. 3 That case precipitated an investigation of Dr. Miller before the Commission on Medical Discipline of Maryland. That investigation began in January of 1988 and continued through January of 1985, when the Commission entered an order noting severe deficiencies in Dr. Miller’s practice and suspending his license to practice medicine unless he complied with numerous conditions imposed by that order.

In August of 1983 Dr. Miller filed a renewal application with General Accident. Question 22 on that application was “Have you ... ever been the subject of investigative or disciplinary proceedings or reprimand by a governmental or administrative agency, hospital or professional association?” Dr. Miller answered, “No.” The renewal application contained a warranty stating: It is warranted ... that the information contained herein is true and that it shall be the basis of the policy of insurance and deemed incorporated therein, should the Company evidence its acceptance of this application by issuance of a policy. A standard condition of the policy was: 1. Application.

By acceptance of this policy, the Named Insured agrees that the statements in the application are his or her representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between the Named Insured and the Company, or any of its agents, relating to this insurance. On June 23, 1984, Dr. Miller again applied for renewal of the policy for the period of August 7, 1984, through August ³⁵⁹ 7, 1985. Question 13 of that application was identical to question 22 of the previous application, and, again Dr. Miller answered, “No.” That application also contained the following: REPRESENTATION: It is represented that the information contained herein is true and that it shall be the basis of the policy of insurance and deemed incorporated therein, should the Company evidence its acceptance of this application by issuance of a policy. A signed but undated renewal application was filed by Dr. Miller shortly before August 7, 1985.

On this application, for the first time, Dr. Miller answered “yes” to the question as to whether he had been the subject of investigative or disciplinary proceedings, and attached to the application a copy of the findings and order of the Commission on Medical Discipline, dated January 29, 1985. This revelation was not made in time for General Accident to give the 45 days notice of nonrenewal required by § 240A. After review of this information, Shand, Morahan & Company, Inc. (Shand), underwriting managers for General Accident, sent Dr. Miller the aforementioned notice of cancellation. A letter accompanying that notice stated, in part: It has recently come to our attention that you have been the subject of an investigation by the Commission on Medical Discipline, which on January 29, 1985 issued an Order imposing certain conditions on your practice of medicine.

Our information indicates that this investigation was undertaken as a result of a complaint filed in connection with your performance of a lens implant on November 17, 1978. Your various applications for renewal of your coverage prior to 1985 do not disclose this investigation. For that reason and because you do not meet our underwriting standards, we enclose herewith a Notice of Cancellation of any policy coverage which may exist by operation of law. Some six weeks after receipt of the notice of cancellation, Dr. Miller wrote the Insurance Commissioner, requesting an ³⁶⁰ investigation to determine if the action by General Accident was justified.

In that letter to the Commissioner, Dr. Miller wrote, in part: I had terminated my insurance with Medical Mutual on 8/83 due to my distress with the situation that had unfolded in the past. I joined General Accident unaware at that time of any disciplinary action. On the renewal application of 8/84, I did not alert them to the investigation as I did not believe that it would end the way it did and also because I was fearful that it would influence their consideration of me as an insured. 4 Pursuant to § 234A(a), the Commissioner undertook an investigation and directed General Accident to continue the policy in effect pending the issuance of his findings. On January 23, 1986, the Commissioner found, in part: Under the provisions of Article 48A, Section 234A(a) of the Annotated Code of Maryland the Insurance Division can take an active interest in an underwriting decision when that decision is arbitrary, caprious [sic], and/or discriminatory, or if the action of the insurer can be demonstrated to be within the insurer’s stated and accepted business and economic purposes.

The criteria used in making a determination as to whether an insurer is in violation of Section 234A(a) is the reason cited by the insurer must actually exist, and must be shown to be factual and genuine. In the instant matter, Shand, Morahan and Company, Inc. and General Accident Insurance Company of America has sought to cancel policy numbered MG100912 and its subsequent renewals, citing as reason for its action misrepresentation by the insured. Section 233 of the Code provides that an applicant should not knowingly or make any “false or fraudulent state ³⁶¹ ment or representation in or with reference to any application for insurance ...” The interpretation of this is that the applicant knowingly and willfully misrepresents himself and the risk materially, with the intent of gaining insurance where none would normally be provided if the misrepresentation or the false statement had not been provided. The insurer shows that the applicant, on applications for renewal of coverage for policy periods August 7, 1983 through August 7, 1984, and August 7, 1984 through August 7, 1985, answered “no” to the question; “Have you ...

(a) Ever been the subject of investigative or disciplinary proceeding or reprimand by a governmental or administrative agency, hospital or professional association?” We noted that each application was reportedly signed and dated by the applicant. Further the insurer shows that the applicant was apprised of a finding by a Peer Review Committee of the Medical and Chirurgical Faculty of the State of Maryland operating at the request of the Commission on Medical Discipline. This review was initiated in June of 1983. The insurer asserts that the applicant’s knowledge of this Peer Review pre dates his application for renewal coverage, signed and dated August 1, 1983.

Therefore, the insured should have answered the aforementioned question affirmatively. In his letter of protest to the Insurance Division, Dr. Miller stated that the Commission on Medical Discipline “... began an investigation on me in January, 1983.” Further, Dr. Miller’s letter reads, “I joined General Accident unaware at that time of any disciplinary action. On the renewal application of August 1984, I did not alert them to the investigation as I did [not] believe that it would end the way it did and, also because I was fearful that it would influence their consideration of me as an insured.” The question of a rescission of the prior policy periods would be based upon the materality of the concealment. ³⁶² The initial findings of the Peer Review was such a nature that it could have affected the underwriting decision of the insurer. There is some question of whether Doctor Miller’s failure to disclose factual information for the policy period August 7, 1988 through August 7, 1984 was deliberate.

The action of the insurer is not restrained by the willful non-disclosure of material information, but that the non-disclosure altered underwriting decision. However, by his own admission Dr. Miller deliberately withheld information from the insurer for the policy period August 7, 1984 through August 7, 1985. This matter is currently before the Courts. Based upon the information presented, the Insurance Division does not find the proposed action of the Shand, Morahan and Company, Inc. and the General Accident Insurance Company of America to be in violation of the Maryland Insurance Code by cancelling the current policy- Under provisions of Article 48A, Section 35(2) of the Annotated Code of Maryland an aggrieved party may request a Hearing within thirty (30) days of this letter.

Such request for Hearing must specify the grounds upon which relief is to be sought at the Hearing. Dr. Miller accepted the Commissioner’s invitation and requested a hearing. He asserted that General Accident had “not explained any details of its underwriting practices and procedures to show that it would not have issued the policy in question” but for the misrepresentations, which he stated were not knowing or wilful, and that, “the decision to cancel the policy ... is arbitrary, capricious and discriminatory and is not based on factual or genuine criteria.” The Commissioner denied the requested hearing, stating: The initial decision of this office under the date of 23 January 1986 was based upon a violation of Article 48A, Section 233 of the Annotated Code of Maryland. This decision was supported by your client’s initial letter requesting the assistance of this office. ³⁶³ The information provided in your request for Hearing is not sufficient to change or cause a reconsideration of the original determination.

Under the provisions of Section 40, the aggrieved party may appeal a refusal to grant a Hearing to the Baltimore City Court, by filing written notice of appeal in such court and by filing a copy of such notice with the Commissioner. Dr. Miller’s appeal to the Circuit Court for Baltimore City was accompanied by a motion to stay the Commissioner’s order, pursuant to § 40(2). The motion was scheduled for hearing before Judge Bothe on April 8, 1986. After an off-the-record discussion with counsel, Judge Bothe determined that the evidence necessary for a decision as to whether to grant the stay would be much the same as the evidence on the merits.

She further reasoned that a failure to grant the stay would have the same effect as an affirmance of the Commissioner on the merits, since the stay previously granted by the Commissioner would expire on the following day. Counsel for Dr. Miller objected to proceeding on the merits, alleging that Dr. Miller was not available to testify, whereupon the judge said: I am quite willing to forego any decision at all today, but Dr. Miller isn’t going to like that because tomorrow, by operation of law, because I believe the thirty days of the current stay issued by the Commissioner will expire today—Is that right? Mr. Azrael (Counsel for Dr. Miller): It will expire tomorrow. Trial on the merits proceeded, at which counsel for Dr. Miller offered documentary evidence that the company had issued a binder for the policy on July 30, 1985; that Dr. Miller had tendered a check in full payment of the premium; and that on March 20, 1985, some four months prior to the last renewal, counsel employed by the insurance company to represent Dr. Miller in a medical malpractice case, had written a letter to the underwriters, in which he advised ³⁶⁴ them, among other things, that, as a result of a previous lawsuit, “proceedings were brought against Dr. Miller by the Medical Society,” and that, on January 29, 1985, Dr. Miller had been placed on probation for three years.

He proffered that Dr. Miller would testify, if present, as follows: He would say that when he made the applications for insurance in 1988 that no disciplinary proceeding had been instituted against him, and, for that reason, he did not—he answered the question “no” in the application. He would say that when the renewal application for 1984 was submitted, again there had been no finding against him and, rightly or wrongly, he answered the question “no”; that when the Commission finally did issue an order in January of 1985 that he was aware that the insurance company, Shand, Morahan, had been notified of this by Mr. Rosner’s letter because a copy of the letter was sent to Dr. Miller and, therefore, when he made his renewal application in July of 1985 he again disclosed the existence of this; he paid the premium in good faith; he believes he was insured; he did not misrepresent anything on that 1985 renewal application. While not formally introduced in evidence, all exhibits and documents presented to and considered by the Commissioner were placed before Judge Bothe, argued by all counsel and considered as part of the record. Judge Bothe denied the motion to stay and affirmed the order of the Commissioner.

Hence this appeal. Preliminarily, appellant asserts that, because the documents relied on by the Commissioner were never formally admitted in evidence, the record does not support the Commissioner’s findings. This procedural oversight was not brought to the attention of the trial judge and not ruled on by her, so it is not properly before us. Rule 1085.

In any event, the record is clear that all parties treated the documents as properly before the court and argued extensively ³⁶⁵ as to their effect. The error, if any, was in no way prejudicial. I The basic standard for reviewing the administrative finding by the Insurance Commissioner is whether the finding is supported by “substantial evidence.” This means whether “a reasoning mind reasonably could have reached the factual conclusion the agency reached.” Lumbermen’s Mut. Casualty v. Ins.

Comm’r, 302 Md. 248, 266 , 487 A.2d 271, 280 (1985), and cases there cited. Section 40(5) of the Insurance Code provides that the court may reverse or modify the decision of the Commissioner if substantial rights of the petitioner may have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (i) In violation of constitutional provisions; or (ii) In excess of the statutory authority or jurisdiction of the Commissioner; or (iii) Made upon unlawful procedure; or (iv) Affected by other error of law; or (v) Unsupported by competent, material, and substantial evidence in view of the entire record as submitted; or (vi) Against the weight of competent, material and substantial evidence in view of the entire record, as submitted by the Commissioner and including de novo evidence taken in open court; or (vii) Unsupported by the entire record, as submitted by the Commissioner and including de novo evidence taken in open court; or (viii) Arbitrary or capricious. While the company had the burden of persuasion to satisfy the Commissioner that the cancellation of the policy was justified; § 234A(a); Gov’t Employees Ins. v. Ins. Comm’r, 273 Md. 467 , 330 A.2d 653 (1975), on appeal to the circuit court, the burden shifted to the petitioner to show that the administrative proceedings prejudiced any of his substantial rights.

Nuger v. Insurance Comm’r, 238 Md. ³⁶⁶ 55, 61, 207 A.2d 619, 622 (1965). In applying