Veydt v. Lincoln National Life Insurance

CATHELL, Judge. Appellant, Gerald R. Veydt (Veydt), appeals the granting of a motion to dismiss filed by Lincoln National Life Insurance Company (Lincoln National), appellee. The ³ case arises out of appellee’s termination of an agency contract between the parties and the subsequent notification to policyholders by appellee that the agency relationship had been terminated and that the insureds had the right to continue coverage under appellee’s policies. Appellant’s complaint, alleged in Count I, “False Light” and in Count II, “Tortious Interference with Business Relationships.” 1 ⁴ The Court of Appeals has stated that the substance of a pleading and not its title, determines the cause of action: Ordinarily, “magic words” are not essential to successful pleading in Maryland.

Courts and administrative . agencies are expected to look at the substance of the allegations before them, not merely at labels or conclusory averments. “[0]ur concern is with the nature of the issues legitimately raised by the pleadings, and not with the labels given to the pleadings.” [Citations omitted.] Alitalia v. Tornillo, 320 Md. 192, 195-96 , 577 A.2d 34 (1990). In a comprehensive and well-reasoned opinion, Judge Davis, of the Circuit Court for Baltimore City, dismissed appellant’s claim in the case sub judice, essentially finding that the statutory remedy contained in Maryland Annotated Code article 48A, sections 234B and 55A (1991), created an exclusive remedy for the redress of appellant’s complaints. His reasoning is hard to improve upon, we therefore include it here: The verbal [written] communications, which form the predicate for Veydt’s claims, are so intricately bound up with the act of termination ... that they cannot be made the basis for a separate tort claim____ If a common law tort claim may be asserted on the basis of verbal acts forming a necessary and appropriate part of the process of [agency] contract termination, as regulated under sec. 234B(d), then that subsection would have no vitality whatsoever____ ⁵ It is difficult to imagine how the Commissioner’s legislatively-created primary jurisdiction over terminations that are “arbitrary, capricious, unfair or discriminatory” would survive the artful pleading of skillful advocates. Here, the amended complaint’s heavy reliance upon Lincoln’s communications does not obscure the reality that Lincoln’s act (of contract termination) is the gravamen of the alleged harm.

In Magan v. Medical Mutual Liability Insurance Society, 81 Md.App. 301, 303 , 567 A.2d 503 (1989), we held that an individual cannot maintain, in addition to the statutory remedy, a tort action for damages in circuit court based upon the same issues advanced or that should have been advanced in the administrative proceedings. 2 As indicated, we agree with the trial judge. We explain further. The Statutory Provisions Article 48A, section 234B was enacted by Chapter 417 of the Laws of 1970. Its stated purpose was to “establish ⁶ standards of fairness in ... [the] treatment of agents” and to confer authority on the Insurance Commissioner “to remedy failure to observe such standards.” Section 234B prohibits any insurer from cancelling or amending a written agreement with an agent “if the cancellation ... is arbitrary, capricious, unfair.” (Emphasis added.) It would be hard to find a clearer statement of legislative purpose than that contained in Chapter 417.

Maryland Annotated Code article 48A, section 55A, is the penalty provision of the Insurance Code. By Chapter 755 of the Laws of 1971, the Legislature reiterated its intention that the Commissioner be fully charged with the responsibility to remedy violations of Article 48A when it increased the maximum penalty the Commissioner can impose from $25,000 to $50,000 and, more important, added to section 55A provisions authorizing the Commissioner to “require that restitution be made by such insurer to any person who has suffered financial injury or damage as a result of such violation.” (Emphasis added.) The Court of Appeals has stated one of the principles of statutory construction as: Where, as here, two statutes deal with the same subject matter and are not inconsistent ... they must be construed together and, to the extent possible, full effect given to each____ ... Unless the intention of the legislature is clearly otherwise, “the requirements of one will be construed as embodying the provisions of the other.” [Citations omitted.] Commission on Medical Discipline v. Bendler, 280 Md. 326, 330 , 373 A.2d 1232 (1977). See also Taxiera v. Malkus, 320 Md. 471, 480-81 , 578 A.2d 761 (1990) (“Words in a statute must, therefore, be read in a way that advances the legislative policy involved____[t]he courts strongly favor a harmonious interpretation in construing the related statutes which gives full effect to both ...”); Kaczorowski v. Mayor and City of Baltimore, 309 Md. 505, 511 , 525 A.2d 628 (1987).

We shall later construe sections 234B and 55A in ⁷ light of the facts in the case at bar. First, however, we shall discuss the general law of agency and the doctrine of apparent authority. The Letter to the Insured Appellee proffers in its brief that if it had not notified its policyholders that appellant was no longer its agent, it might have incurred liability for Mr. Veydt’s actions after cancellation. We agree.

The doctrine of apparent authority is well settled in Maryland. The Court of Appeals in Reserve Insurance Company v. Duckett, 240 Md. 591, 600-01 , 214 A.2d 754 (1965), has stated that this doctrine is applicable to insurance companies: The doctrine is stated succinctly in Hobdey v. Wilkinson, [ 201 Md. 517, 526 , 94 A.2d 625 (1953)] as follows: “One who knowingly permits another to act for him as though authorized, inducing third persons to rely to their disadvantage on the seeming authority, is estopped from later asserting the lack of authority of his apparent agent.” ... [T]he doctrine of either apparent authority or estoppel can be applied, in an appropriate case, even where authority to bind an insurance company is involved. Taylor v. United States Casualty Co. (S.C.) [ 229 S.C. 230 ], 92 S.E.2d 647, 652 [ (1956) ]. That this is true in Maryland is either held or indicated in Hankins v. Pub.

Ser. Mutual Ins. Co., [ 192 Md. 68, 79-82 , 63 A.2d 606 (1949)]; American Casualty Co. v. Ricas, [ 179 Md. 627, 631-34 , 22 A.2d 484 (1941) ] and Trust Co. v. Subscribers, Etc., [ 150 Md. 470, 475-76 , 133 A. 319 (1926)]. Similarly, we said in Progressive Casualty Insurance Co. v. Ehrhardt, 69 Md.App. 431, 441 , 518 A.2d 151 (1986): Specifically, the principal becomes responsible for the agent’s actions when the principal’s conduct, either affirmative acts or the failure to take corrective steps, has clothed an agent with apparent authority and thereby induces a third party to rely to his detriment. ⁸ Furthermore, under general agency law, the responsibility of the principal to third persons extends and binds the principal when the agent is “held out ... to the other party, as having competent authority, although, in fact, he has, in the particular instance ... acted without authority.” Parker v. Junior Press Printing Serv., Inc., 266 Md. 721, 728 , 296 A.2d 377 (1972) (quoting Wailes and Edwards, Inc. v. Bock, 265 Md. 274, 289 , 289 A.2d 297 (1972)).

In the present case, prior to termination, appellant was appellee’s agent and was permitted to procure and service policies. Until such time as appellee notified its policyholders that appellant was no longer its agent, it had held appellant out as appellee’s agent for the purpose of procuring and servicing the policies in question. Notwithstanding the fact that appellant’s actual authority was terminated, absent some notification, apparent authority might still exist as to those policyholders without actual knowledge of the termination. See Insurance Management of Washington, Inc. v. Eno & Howard Plumbing Corp., 348 A.2d 310, 312 (D.C.1975).

The letters, restrained as they were in form and nature, were corrective steps necessary to terminate the agent’s apparent authority as to the policyholders. Absent the letters, or other sufficient notice, the termination of the agent’s actual authority may well have left extant apparent authority to bind the appellee. Judge Bell, for the Court, said that the authority of an agent may be actual or apparent. Hill v. State, 86 Md.App. 30, 35 , 585 A.2d 252 (1991).

We opined, however, that the authority may be subject to limitation and that: “If that limitation is brought to the attention of the party with whom the agent is dealing, the power to bind the principal is subject to that limitation. Generally, one who deals with an agent knowing of the limitations cannot hold the principal beyond that limit.” Id. at 35 , 585 A.2d 252 (citation omitted). We know of no other reasonable way to notify the policyholders of the termination of appellant’s authority other than to communicate that termination to them. Letters, especially those as restrained in content as in the case ⁹ at bar, are a particularly effective method of communication.

Such letters do not give rise to separate causes of action vis-a-vis the principal and the agent. Although we have not been directed to any Maryland cases, nor have we found any, expressly accepting such letters in an insurer/agent context as appropriate methods of communicating the termination of an agency to concerned third parties, courts of other jurisdictions have specifically held that letters of notification are either required or permitted. 3 The Supreme Court of Nebraska in Zukaitis v. Aetna Casualty and Surety Co., 195 Neb. 59 , 236 N.W.2d 819, 821 (1975), stated the general rule in regard to policyholder notice when agency agreements are terminated: [I]t is necessary to refer to the general law of agency. The rule is that a revocation of the agent’s authority does not become effective as between the principal and third persons until they receive notice of the termination. [Citations omitted.] Quoting 3 George J. Couch, Couch on Insurance 2d section 26:51 (revised 1984), 4 the Court opined: When the insurer terminates the agency contract, it is its duty to notify third persons, such as the insureds ... and inform them of such termination. If it does not ... the insurer is bound by the acts of the former agent.

Zukaitis, 236 N.W.2d at 821 . Accord Martin v. Argonaut Ins. Co., 91 Idaho 885 , 434 P.2d 103, 107 (1967) (holding that no constructive notice to policyholder arises from a filing of agency termination with the Department of Insurance). The policyholder’s letter in Woodruff v. Auto Owners Ins.

Co., 300 Mich. 54 , 1 N.W.2d 450, 454 (1942), provided, in part: ¹⁰ Please be advised that the H.C. Woodruff Agency ... has been discontinued as an agent ... effective April 1st, 1937. Therefore, for the time being, any reports of accidents or changes in your policy should be reported to T.M. Alexander____ Assuring you of our continued prompt and careful attention to all matters pertaining to your policy with us____ The agent in Woodruff complained that the letter took an interest away from him. The court held: Appellee’s contention that the letter was improper is not tenable. Its truthfulness or accuracy is not challenged.

Defendant not only had a right to advise these policyholders of the termination of the Woodruff [A]gency, but it was its legal duty to do so or in the alternative be bound by any action of Mr. Woodruff within the scope of his former agency____ Id. The appellee further asserts that if appellant were permitted to bring a tort action based on the letters sent to the policyholders, the insurers would be put in a precarious situation: Once a legal duty exists to notify the insured[s] in order to disavow the existence of apparent authority, the letter notifying the insureds that no such authority exists, apparent or otherwise, cannot, as a matter of law, then form the basis for tort claims for false light or tortious interference with contractual relations. A converse result would put insurers to a Hobson’s choice. If insurers do not notify their insureds of the cancellation of an insurance agent, the doctrine of apparent authority may be applied to hold the insurer liable for the actions of the canceled insurance agent.

If the insurer takes steps to withdraw the existence of apparent authority by writing to its insureds and informing them ¹¹ of the cancellation of the insurance agent, the law then holds this same information sufficient to sustain tort claims for false light or tortious interference with contractual relations. [Citation omitted.] We agree. As previously stated, the doctrine of apparent authority requires notification of termination of the agency relationship. Moreover, insurers are prevented from cancelling an insured’s policy merely because the agency relationship has been terminated. Md.Ann.Code art. 48A, § 234B(c) (1991).

A policyholder therefore has a statutory right to continuation of coverage by the same insurance company after termination of the agent’s contract. An insurer must be able to notify the policyholder of the right to continuing coverage as well as termination of the agency agreement without being subject to suit for merely giving notice. The Exclusiveness of the Administrative Remedy Had the trial court decided this issue on the sole ground that appellant had failed to exhaust his administrative remedy, it could have stayed the tort action and retained jurisdiction pending administrative exhaustion. See McCullough v. Wittner, 314 Md. 602, 613 , 552 A.2d 881 (1989); Maryland-National Capital Park and Planning Comm’n v. Crawford, 307 Md. 1, 17 , 511 A.2d 1079 (1986).

By dismissing the matter, the court accepted appellee's contention that appellant’s sole remedy was administrative. That contention was based on appellee’s argument that the facts all related to the termination of the contract and, as to that matter, the Commission had exclusive jurisdiction. A well-settled principle in administrative law is that where a statutory remedy is provided, that remedy is exclusive. Quoting in part from prior cases, the Court of Appeals, in Board of Education v. Secretary of Personnel, 317 Md. 34, 42 , 562 A.2d 700 (1989), said: “Ordinarily where a statutory administrative remedy is provided, it will be deemed to be exclusive.” Additionally, the Court, in Prince George’s County v. Blumberg, 288 Md. 275, 283-85 , 418 ¹² A.2d 1155 (1980), cert. denied, 449 U.S. 1083 , 101 S.Ct. 869 , 66 L.Ed.2d 808 (1981), stated: An examination of the decisions of this Court over the last four or five decades will supply ample support for the statement that there are few legal tenets which have received greater acceptance into the jurisprudential law of this State than the one announcing: ____ [T]hat where a special form of remedy is provided, the litigant must adopt that form and must not bypass the administrative body or official, by pursuing other remedies. [Citations omitted.] Likewise in McLean Contracting Co. v. Maryland Transportation Authority, 70 Md.App. 514, 521-22 , 521 A.2d 1251 (1987), we stated: “[A]bsent a legislative indication to the contrary, it will usually be deemed that the Legislature intended a special statutory remedy for the resolution of a particular matter to be exclusive.” (Quoting White v. Prince George’s County, 282 Md. 641, 649 , 387 A.2d 260 (1978)).

Not only are statutory remedies exclusive, they must be exhausted before judicial review is granted. The Court of Appeals restated the doctrines of administrative exclusiveness and exhaustion of remedies in White v. Prince George’s County, 282 Md. 641, 649 , 387 A.2d 260 (1978): Where there exists a special statutory remedy for the resolution of a particular matter, as well as an ordinary action at law or in equity, whether the special statutory remedy is exclusive, and preempts resort to the ordinary civil action, is basically a question of legislative intent. In ascertaining that intent, it is a settled principle of statutory construction that, absent a legislative indication to the contrary, it will usually be deemed that the Legislature intended the special statutory remedy to be exclusive. Moreover, where the special statutory scheme for relief is exclusive and includes administrative proceedings and provisions for judicial review of the administrative decision, one must normally exhaust the administrative ¹³ remedy before recourse to the courts under the judicial review provisions. [Footnote omitted, citations omitted.] While the majority of cases in which White has been cited are tax cases and most of the cases cited in White are also tax cases, the doctrine of administrative exclusiveness has been referred to in numerous non-tax cases.

See DuBois v. City of College Park, 280 Md. at 525, 533 , 375 A.2d 1098 (1977), rev’d on other grounds, 286 Md. 677 , 410 A.2d 577 (1980), aff'd on other grounds, 293 Md. 676 , 447 A.2d 838 (1982), cert. denied, 459 U.S. 1146 , 103 S.Ct. 787 , 74 L.Ed.2d 993 (1983) (constitutionality of apportionment); Soley v. State Comm’n on Human Rel., 277 Md. 521, 526 , 356 A.2d 254 (1976) (civil rights violation); Leatherbury v. Gaylord Fuel Corp., 276 Md. 367, 371-76 , 347 A.2d 826 (1975) (action to enjoin threatened nuisance); Agrarian, Inc. v. Zoning Inspector, 262 Md. 329 , 277 A.2d 591 (1971) (zoning); Lee v. Secretary of State & Mahoney, 251 Md. 134, 138-39 , 246 A.2d 562 (1968) (challenge of registration of voters). In Magan v. Medical Mutual Liability Insurance Society, 81 Md.App. 301 , 567 A.2d 503 (1989), the appellant appealed the administrative decision and filed a separate suit in the circuit court sounding in tort. In reference to the administrative appeal, we stated: Medical Mutual’s underwriting obligations are statutorily created and remedies for violations thereof must in the first instance be pursued with the Commissioner. Since Magan’s statutory remedy is still being pursued before the Commissioner, he must await the outcome and, if unsuccessful, then the appropriate action is to appeal.

Magan’s attempt to supplement this process by filing a complaint in the circuit court is, as previously explained, a ploy to try the case twice and presumably appeal twice. Hence, dismissal was proper. 81 Md.App. at 313 , 567 A.2d 503 . Regarding the tort claim, we held that the administrative remedy could not be circumvented, stating that the appellant: [A]ttempt[ed] to circumvent these administrative procedures by pursuing a separate claim for damages in the ¹⁴ 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. Id. at 308 , 567 A.2d 503 . As to administrative exclusiveness, we opined further in Magan : “Here, the administrative and judicial review provided for by the Maryland Insurance Code does not contain any statement or