People's Insurance Counsel Division v. State Farm Fire & Casualty Insurance

EYLER, DEBORAH S., J. During a blizzard in the winter of 2010, Moira and Gregory Taylor’s carport in West River, Anne Arundel County, collapsed under the weight of ice and snow. They filed a claim under their homeowners insurance policy (“the Policy”) with State Farm Fire and Casualty Insurance (“State Farm”), the appellee. State Farm denied the claim on the ground that the ⁴⁴¹ carport was not a “building” and that the Policy only covered losses due to collapse of buildings. The Taylors filed a complaint with the Maryland Insurance Administration (“the MIA”), alleging that State Farm had violated Md.Code (1995, 2011 Repl.Vol.) section 27-303 of the Insurance Article (“Ins.”), prohibiting unfair claim settlement practices, by “refusing] to pay [their] claim for an arbitrary or capricious reason based on all available information” or “failing] to act in good faith” in settling their claim.

Id. at §§ 27-303(2) and (9), respectively. The People’s Insurance Counsel Division (“PICD”), 1 the appellant, intervened on behalf of the Taylors. Following a hearing before the Associate Deputy Commissioner of the MIA, the Insurance Commissioner (“the Commissioner”) issued a final decision ruling that State Farm had not violated Ins. section 27-303. PICD filed a petition for judicial review of that decision in the Circuit Court for Baltimore City.

The circuit court affirmed the final decision of the MIA. PICD presents one question for review, which we have rephrased: Was the MIA’s decision finding that State Farm did not violate the Insurance Article when it denied the Taylors’ claim legally correct and supported by substantial evidence in the record? For the reasons to follow, we answer that question in the affirmative and shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS A. The Policy We begin by setting forth the relevant Policy provisions. “SECTION I—COVERAGES” provides in pertinent part: ⁴⁴² COVERAGE A—DWELLING 1.

Dwelling. We cover the dwelling used principally as a private residence on the residence premises shown in the Declarations. Dwelling includes: a. structures attached to the dwelling!.] 2. Dwelling Extension.

We cover other structures on the residence premises, separated from the dwelling by clear space.... (Emphasis in original.) “SECTION I—LOSSES INSURED” states that the Policy covers “accidental direct physical loss to the property described in Coverage A except as provided in SECTION I— LOSSES NOT INSURED.” (Emphasis added.) That section provides in relevant part: 1. We do not insure for any loss to the property described in Coverage A which consists of, or is directly and immediately caused by, one or more of the perils listed in items a. through o. below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: a. collapse, except as specifically provided in SECTION I—ADDITIONAL COVERAGES, Collapse. (Italicized and bolded emphasis added.) “SECTION I—ADDITIONAL COVERAGES” includes twelve numbered subsections.

Subsection 11 governs “Collapse,” providing, as relevant, “We insure only for direct physical loss to covered property involving the sudden, entire collapse of a building or any part of a building,” including collapse caused by “weight of ice, snow, sleet, or rain which collects on a roof.” (Emphasis added.) Subsection 11 specifically excludes from coverage losses to an “awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, ⁴⁴³ wharf or dock” unless such a loss was directly caused by the “collapse of the building.” The “DEFINITIONS” section of the Policy does not define “building” or “structure.” B. The Taylors’ Claim Ms. Taylor owns the West River house, which is located at 1025 Dunnington Place (“the Property”). She and her husband reside there. In 2007, the Taylors decided to erect a detached carport on the Property. 2 After choosing the design for the carport, Ms. Taylor called Angela Yancey, her State Farm insurance agent, to ask whether a carport would be “covered” under the Policy. Ms. Yancey replied that it would be “covered.” The 20-foot by 24-foot carport was constructed on an existing asphalt pad next to the house.

It had a metal, pitched roof with gable ends. It did not have any walls. The roof was supported by ten metal poles, five on each side, secured to a steel track that, in turn, was secured to the asphalt pad. The carport was not attached to the Taylors’ house.

On February 10, 2010, a blizzard hit Maryland. The carport collapsed under the weight of more than a foot of snow and ice. It landed on the Taylors’ two cars, a snow blower, and a power washer. The next day, the Taylors called Ms. Yancey to report the collapse of the carport, other damage to their house caused by the storm, and the damage to their vehicles and other personal property.

Ms. Yancey forwarded the Taylors’ claim to the claims division of State Farm. 3 ⁴⁴⁴ The Taylors asked Ms. Yancey whether they could arrange for the carport to be removed from the Property so they could gain access to their cars. Ms. Yancey advised them to take pictures of the damage before taking any steps to remove the carport. The Taylors did so and then had the carport removed. On February 24, 2010, Ms. Yancey issued a check to the Taylors for $1,250, to cover the cost of removing the carport.

The check was issued from Ms. Yancey’s discretionary funds and did not include a reservation of rights. Because of the widespread damage caused by the blizzard, State Farm’s Catastrophe Services Division in Alabama assembled a catastrophe team to adjust the claims. Field representatives dispatched to the affected areas were verbally instructed by their on-site team managers that under the standard policy language losses due to collapse only were covered for buildings and that a building is a structure with a roof and at least three walls. On March 2, 2010, Jeanie Havens, a member of the catastrophe team, traveled to the Property to adjust the Taylors’ claim.

The carport already had been removed, so Mr. Taylor showed Ms. Havens pictures of the collapsed carport. Ms. Havens took one picture with her. She informed Mr. Taylor that the loss to the carport and the personal property inside of it would not be covered because the carport was not a “building.” Mr. Taylor told Ms. Havens to get off the property. In a letter dated that same day, Ms. Havens formally advised the Taylors that their claim had been denied.

She explained that, based on her inspection and discussion with Mr. Taylor, the “damage to [the] carport and contents located beneath it was caused by collapse” and that “[d]amage resulting from this cause of loss is not covered by [the Policy].” The letter went on to quote the pertinent Policy provisions, including “SECTION I—LOSSES INSURED, COVERAGE A—DWELLING”; “SECTION I—LOSSES NOT INSURED”; and “SECTION I—ADDITIONAL COVERAG ⁴⁴⁵ ES.” 4 Two months later, on May 12, 2010, Ms. Taylor -wrote to the MIA to request a formal investigation into the denial of the claim, pursuant to Ins. section 27-303, which prohibits insurers from engaging in unfair claim settlement practices. The MIA’s Property and Casualty Division investigated the Taylors’ complaint and, on November 12, 2010, determined that State Farm’s action in denying the claim “ha[d] not been shown to be arbitrary, capricious, or lacking in good faith.” On December 13, 2010, the Taylors requested a hearing before the MIA on their complaint. The hearing was held on February 7, 2012, before the Associate Deputy Commissioner (“ADC”). 5 At the outset of the hearing, the ADC granted, over State Farm’s objection, PICD’s motion to intervene. Mr. and Ms. Taylor testified in their case.

In addition to the above-stated facts, they also testified that wind may have been a factor in the carport’s collapse. PICD called an expert witness, Jeffrey Gould. Mr. Gould, a CPA and licensed public adjuster with American Claims Management Services, opined based on his experience handling thousands of homeowners insurance claims that the terms “structure” and “building” are synonymous. For this reason, he was of the view that the Taylors’ claim should have been covered as a loss due to the collapse of a building.

Mr. Gould also testified that in preparation for his testimony he had reviewed homeowners insurance policies of approximately ten ⁴⁴⁶ different insurers doing business in Maryland. One of those policies, issued by Allstate, defined the term “building structure” to mean a “building with a roof and four walls.” The other nine policies did not define the term “building.” State Farm called Ms. Havens, Ms. Yancey, and Daniel Hagan, a State Farm claims team manager, as fact witnesses, and called Stanley Lipshultz as an expert witness. Ms. Havens testified about the instructions she had been given by her on-site team manager prior to being dispatched to Maryland to adjust claims resulting from the blizzard. She explained that she had been instructed that a “building would be constituted as a structure that had a roof and at least three enclosed walls permanently affixed.” She handled “all collapse claims” in accordance with this instruction.

She further stated that she had been given identical instructions in the past concerning the definition of a building. Ms. Yancey testified that her decision to issue a check to the Taylors in February of 2010 was discretionary with her office and did not reflect a determination that the claim for the loss of the carport was covered. She also testified that she had no recollection of having a conversation with Ms. Taylor in 2007 concerning the planned construction of the carport. In any event, Ms. Yancey stated that, if she had advised Ms. Taylor that a carport would be “covered” under the Policy, that would have been a correct statement because for most losses a carport is covered as a dwelling extension.

Mr. Hagan testified that in May 2010 he conducted a secondary review of the denial of the Taylors’ claim. He concurred with Ms. Havens’s decision to deny the claim for the loss to the carport, but countermanded her decision to deny the claim for the loss to the personal property located inside the carport, ie., the snow blower and the power washer. Mr. Hagan explained his step-by-step coverage analysis under the Policy. First, he determined that the carport was covered as a “dwelling extension” because it was a “structure on the ... premises separated from the dwelling by clear space.” Second, he determined that a loss to a dwelling extension ⁴⁴⁷ would be covered except as provided in “SECTION I—LOSSES NOT INSURED.” Third, he determined that that section excludes a loss caused by collapse unless specifically included in the “ADDITIONAL COVERAGES” section.

Fourth, he determined that the “ADDITIONAL COVERAGES” section states that loss due to collapse caused by certain named perils, including the weight of ice or snow, is covered, but only if the collapse is “of a building or any part of a building.” Mr. Hagan explained that, when a Policy term is not defined, the standard practice is to use “the layman’s definition,” which, in the case of the word “building,” is “[a] structure with walls and a roof.” Under that definition, a “poled carport with a roof is not a building.” He thus concluded that the Policy did not cover the loss of the carport due to collapse because the carport was not a “building.” Mr. Lipshultz, a consultant and insurance instructor, opined based on his familiarity with insurance industry practices in adjusting claims that State Farm had not denied the Taylors’ claim arbitrarily or capriciously or without acting in good faith. On March 23, 2012, the Commissioner issued a “Memorandum and Final Order” denying the Taylors’ complaint based upon the ADC’s findings of fact, which the Commissioner adopted. In the “Findings of Fact” section, the Commissioner credited Ms. Taylor’s testimony that, before the carport was erected, she asked Ms. Yancey whether a carport would be covered under the Policy. The Commissioner further found that there was no dispute that the carport was a permanent structure, that it was not attached to the Taylors’ house, and that it did not have any walls.

She also found as a fact that the Taylors’ loss was caused by collapse due to the weight of snow and ice, explicitly rejecting the Taylors’ assertion that “perhaps wind or tree branches” had caused the collapse. The Commissioner credited Ms. Havens’s testimony that she denied the Taylors’ claim based solely upon the verbal instructions she and the other members of the catastrophe team had received and that these instructions were consistent ⁴⁴⁸ with instructions she had received in the past concerning the meaning of the term “building.” The Commissioner found Mr. Hagan’s testimony about “the process by which he determined that the collapse of the carport due to the weight of ice and snow on its roof was not a covered loss” helpful, noting that Mr. Hagan made his claim determination “independent[ ] of the prior determination [by Ms. Havens]” and that he applied a standard, layman’s definition of the word “building” in reaching his claim determination. In the “Discussion” section of her “Memorandum and Final Order,” the Commissioner set forth the parties’ contentions and the statutory framework governing a complaint alleging unfair claim settlement practices under Ins. section 27-303. She then analyzed the Taylors’ complaint, ruling that they had failed to prove by a preponderance of the evidence that State Farm’s “refusal to pay the Claim was for a reason other than a lawful principle or standard which the Insurer applies across the board to all claimants, was unreasonable based on all available information, based on a whim, or demonstrated a failure to act in good faith.” The Commissioner reasoned that the Policy did not “use the terms ‘building’ and ‘structure’ interchangeably” and that “only a building is covered for collapse.” She emphasized that before the MIA the Taylors, not State Farm, bore the burden of proof and persuasion to demonstrate that State Farm had acted arbitrarily, capriciously, or with a lack of good faith in denying their claim—a burden they did not meet.

She specifically rejected the Taylors’ argument that the denial had to have constituted a violation of Ins. section 27-303(2) and (9) because “the only reasonable interpretation of [the Policy] is that [the Taylors’] permanent carport is a building.” Finally, the Commissioner observed that the Taylors “relied heavily, almost exclusively, on the fact that they installed the carport only after [Ms. Taylor] read the Policy and confirmed with [Ms. Yancey] that the carport was covered under the Policy.” She emphasized that Maryland appellate cases make plain that the language of an insurance policy is determinative of coverage and contrary representations by insurance agents ⁴⁴⁹ have no impact on whether a loss is covered. For all of these reasons, the Commissioner denied the Taylors’ complaint. On April 19, 2012, PICD petitioned for judicial review of the MIA decision. On August 9, 2012, the circuit court affirmed the decision of the MIA.

This timely appeal followed. STANDARD OF REVIEW In this appeal from the judgment of the circuit court on judicial review of a final agency decision, we look “through” the decision of the circuit court and review the decision of the MIA. People’s Counsel v. Country Ridge Shopping Ctr., Inc., 144 Md.App. 580, 591 , 799 A.2d 425 (2002). See also Ins.

Comm’r v. Engelman, 345 Md. 402, 411 , 692 A.2d 474 (1997) (reviewing a final decision of the Insurance Commissioner). Our review of the agency decision is circumscribed. See Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67 , 729 A.2d 376 (1999). It is “limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.” United Parcel Serv. v. People’s Counsel, 336 Md. 569, 577 , 650 A.2d 226 (1994).

In applying these standards, we review the record in the light most favorable to the agency and “defer to [its] fact-finding and drawing of inferences” if supported by any evidence in the record. Banks, supra, 354 Md. at 68 , 729 A.2d 376 . We review purely legal decisions de novo. See People’s Counsel v. Loyola College in Md., 406 Md. 54, 67-68 , 956 A.2d 166 (2008).

Even so, with respect to an agency’s legal conclusions, we give “considerable weight” to the agency’s “interpretation and application of the statute which the agency administers.” Banks, at 69, 729 A.2d 376 . See also Marzullo v. Kahl, 366 Md. 158, 173 , 783 A.2d 169 (2001) (appellate court must accord appropriate deference to agency expertise even with respect to conclusions of law). In the context of appellate review of an administrative agency decision on a mixed question of law and fact, we apply the substantial evidence test. ⁴⁵⁰ Charles County Dep’t of Social Servs.