Stavely v. State Farm Mutual Automobile Insurance

ELDRIDGE, J. We granted a petition for a writ of certiorari in this case to review the administrative denial of a request for attorney fees under Maryland Code (1997, 2002 Repl.Vol., 2002 Supp.), § 27-605(h) of the Insurance Article. ¹¹⁰ I. The appellate proceedings in this case, both in the Court of Special Appeals and in this Court, were based upon the parties’ agreed statement of facts filed in accordance with Maryland Rule 8-501 (g). 1 The agreed statement of facts, in relevant part, is as follows. . “1. On July 6, 1995, Appellee State Farm Mutual Automobile Insurance Company (“State Farm”) notified Appellant Joseph Stavely (“Stavely”) of its proposed nonrenewal of his motor vehicle liability insurance policy. Stavely filed a protest with the Maryland Insurance Administration (“MIA”) regarding State Farm’s proposed nonrenewal of his motor vehicle liability insurance policy. The Maryland Insurance Administration, after investigation, affirmed State Farm’s proposed action, and Stavely requested a hearing. “2.

A hearing was held on November 20, 1995, before Administrative Law Judge (“ALJ”) James G. Klair. “3. On December 22, 1995, ALJ Klair issued a decision in favor of Stavely finding that State Farm’s statistical basis for its underlying standards and the validity of those statistics was-insufficient to meet the first two prongs of the criteria set forth in Crumlish v. Insurance Commissioner et al., 70 Md. App. 182 , 520 A.2d 738 (1987). “4. ALJ Klair did not rule on Stavely’s request for attorney fees in the amount of $3,740 as he held that ruling in abeyance pending submission of any objections by State Farm. ¹¹¹ “6. State Farm [sought judicial review of] the December 22, 1995, OAH decision [in] the Baltimore City Circuit Court.

On June 5, 1996, Chief Judge Robert I.H. Hammerman reversed the OAH [Office of Administrative Hearings] decision, believing it arbitrary and capricious. “7. Stavely appealed the Circuit Court’s ruling to the Court of Special Appeals. On December 12, 1997, the Court of Special Appeals reversed the Circuit Court, reinstating the decision of ALJ Hair in favor of Complainant, and remanded the case to the MIA. “8. State Farm subsequently filed for and was granted certiorari by the Court of Appeals.

On October 20, 1998, the Court of Appeals dismissed State Farm’s writ of certiorari, stating that the writ had been improvidently granted. “9. After the Mandate, Stavely filed a motion for attorney fees in the Baltimore City Circuit Court. After receiving State Farm’s response, Stavely requested that the Circuit Court remand the case to the Insurance Commissioner for a determination regarding whether attorney fees should be awarded. “10. This case was remanded by the Insurance Commissioner to the Office of Administrative Hearings on June 28, 1999, to determine if Stavely, as the prevailing party, was entitled to the award of attorney’s fees. “11.

A telephone pre-hearing conference was convened on August 17, 1999, before ALJ Brian Zlotnick, pursuant to Md.Code Ann., Ins. [§ ] 27-605 (1997). The issues were narrowed, and a briefing schedule was ordered as a result of the August 17th pre-hearing conference. “13. The issues to be determined by the ALJ were: ¹¹² Whether State Farm is required to pay attorney fees to Stavely’s attorney, David A. Titman, as a result of its action to nonrenew Stavely’s automobile insurance policy. If attorney Titman’s fees are warranted, to what extent are those fees to be awarded to him.

(a) Is State Farm only required to pay attorney fees for Titman’s participation in the November 20 OAH hearing before ALJ Klair; (b) Or, is State Farm liable for all attorney fees incurred by Titman for his preparation and participation in the Administrative hearing and for all other work performed throughout the entire appeal process of this case. “14. On December 17, 1999, ALJ Zlotnick issued a Memorandum Order concluding, as a matter of law, [that] Stavely’s request for counsel fees be denied which decision was based upon the ALJ’s finding that State Farm’s actions were not unjustified; accordingly the issue of quantum of fees was never reached. “15. On January 14, 2000, a timely Petition for Judicial Review was filed[, in the Circuit Court for Baltimore City,] by Stavely, ... and a Statement in Lieu of Record was filed by the parties. “16. The Maryland Insurance Administration declined to participate in the [proceedings in] the circuit court, and, when its counsel was contacted concerning the present appeal, advised that it would not participate. “17.

On September 28, 2000, the petition for judicial review was orally argued before Judge Joseph P. McCurdy. On that day Judge McCurdy ... ruled that ALJ Zlotnick’s Order dated December 17, 1999, be upheld and that petitioner’s request for counsel fees be denied. ¹¹³ “18. A timely appeal to the Court of Special Appeals was noted.... ” The Court of Special Appeals affirmed the judgment of the Circuit Court, Stavely v. State Farm, 138 Md.App. 1 , 769 A.2d 1008 (2001). Stavely filed in this Court a petition for a writ of certiorari which we granted.

Stavely v. State Farm, 365 Md. 65 , 775 A.2d 1216 (2001).

II

Section 27-605 of the Insurance Article of the Maryland Code regulates certain actions by insurers with respect to motor vehicle liability insurance policies. Specifically, § 27-605 regulates cancellations, nonrenewals, premium increases, and reductions in coverage. See § 27-605(b). Section 27-605(c) provides that, at least 45 days before one of these proposed actions is to be effective, the insurer must send written notice to the insured that the insurer intends to take the particular proposed action, that the notice must be in a certain form and must contain certain information, that the insured has a right to protest the proposed action and request a hearing before the Insurance Commissioner or the Commissioner’s designee, and that, if the insured files a protest, the policy will stay in effect until the Commissioner’s determination.

Subsection (c) also requires that the notice inform the insured of “the authority of the Commissioner to award reasonable attorney fees to the insured for representation at [the] hearing” if the Commissioner decides the case in the insured’s favor. Section 27-605(g) provides for the administrative hearing, and states that the hearing shall be conducted in accordance with the contested cases subtitle of the Maryland Administrative Procedure Act, Code (1984, 1999 RepLVol., 2002 Supp.), §§ 10-201 through 10-226 of the State Government Article. Section 27-605(h) of the Insurance Article relates to the Insurance Commissioner’s decision following a hearing. Subsection (h) provides as follows: ¹¹⁴ “(h) Order following hearing. — (1) The Commissioner shall issue an order within 30 days after the conclusion of the hearing.

(2) If the Commissioner finds the proposed action of the insurer to be justified, the Commissioner shall: (i) dismiss the protest; and (ii) allow the proposed action to be taken on the later of: 1. its proposed effective date; and 2. 30 days after the date of the determination. (3) If the Commissioner finds the proposed action to be unjustified, the Commissioner: (i) shall disallow the action; and (ii) may order the insurer to pay reasonable attorney fees incurred by the insured for representation at the hearing as the Commissioner considers appropriate.” Consequently, if the Commissioner finds that the proposed action of the insurer is “justified,” subsection (h)(2) requires that the proposed action be allowed. If, however, the Commissioner finds that the proposed action is “unjustified,” subsection (h)(3)(i) mandates that the Commissioner “shall disallow the action.” Under the plain language of the statute, a finding of justification or a finding of no justification determines whether the proposed action, such as a nonrenewal, shall be allowed or disallowed. The Commissioner’s authority to “disallow” the proposed action is limited to the situation where the proposed action is