Vicente v. Prudential Insurance Co. of America

SALMON, Judge. On December 14, 1993, the Circuit Court for Montgomery County (Ryan, J.) dismissed, without prejudice, the third amended complaint filed by Carlos Vicente and his father, Jose Vicente, against The Prudential Insurance Company of America (“Prudential”) and Sergio M. Cabreras, Prudential’s agent. The Vicentes raise two issues on appeal, which we have rephrased for clarity: 1. Whether the circuit court properly dismissed the third amended complaint based on appellants’ failure to exhaust their administrative remedies. 2.

Assuming, arguendo, that some exhaustion was required, under the doctrine of “primary jurisdiction” should this case be remanded to the circuit court to be tried on its merits. ¹⁵ We answer “yes” to the first question and “no” to the second and shall affirm. BACKGROUND In their third amended complaint, the Vicentes allege that they purchased a policy of health insurance issued by the National Independent Business Association (“NIBA”), based on Mr. Cabrera’s representation that NIBA was licensed and authorized to do business in Maryland. According to the third amended complaint: NIBA was not licensed or authorized to do business in the State of Maryland which is in violation of the Maryland Annotated Code, Art. 48A, Section 1. Such licensing required that the insurer meet certain capital requirements and other standards to protect the public and in fat [sic] the sale of such insurance was illegal.

The Vicentes alleged that Mr. Cabrera represented to them that he was an “agent and registered representative of ... Prudential” and that Mr. Cabrera’s false representations were made “on behalf of’ Prudential. The Vicentes further alleged that, but for the representation by Mr. Cabrera that NIBA was both authorized to do business in Maryland and adequately capitalized, they would not have purchased the NIBA policy. According to the third amended complaint, the misrepresentations resulted in damages because, while the NIBA policy was in effect, the Vicentes were hospitalized and incurred medical expenses of $25,273.01, of which NIBA was required to pay $23,181.40.

After appellants submitted their claim to NIBA, they were advised that NIBA was in receivership, and no part of their claim was paid. The third amended complaint purported to state causes of action for negligent misrepresentation (Count I), fraud (Count II), constructive fraud (Count III), and negligent supervision (Count IV). Each cause of action was predicated on Mr. Cabrera’s (alleged) “false representation” to insurance applicants (the Vicentes) that NIBA was licensed in Maryland and adequately capitalized. ¹⁶ EXHAUSTION OF REMEDIES The general exhaustion of remedies rule is that, “where a statute provides a special form of remedy, the plaintiff must use that form [of remedy] rather than any other.” Bits “N” Bytes v. C & P Telephone, 97 Md.App. 557, 573 , 631 A.2d 485 (1993), citing Soley v. State Comm’n on Human Relations, 277 Md. 521, 526 , 356 A.2d 254 (1976). The central issue here presented is whether any section of the Insurance Code of Maryland provides a “special form of remedy” available to the Vicentes.

Subtitle 15 of the Insurance Code of Maryland 1 encompasses §§ 212-240J of Art. 48A, which address unfair trade practices in the insurance industry. As used in the insurance code, “Unfair Trade Practices Act” means practices prohibited by §§ 212 through 234, inclusive, of Art. 48A. One of the categories of unfair trade practices, set forth in Subtitle 15, is titled “fraudulent acts.” Such acts are defined in § 233 of the Unfair Trade Practices Act. Section 233(d) reads, in pertinent part, “It shall be a fraudulent insurance act for a person to: (1) Knowingly or willfully make any false or fraudulent statement or representation ... with reference to any application for insurance....” 2 The insurance code, § 4, defines “per ¹⁷ son” as “includfing] an individual, insurer, ... and any other legal entity.” Section 233(e) 3 provides: Penalties.—A person who violates this section is guilty of a misdemeanor and is subject to a fine up to $10,000 or imprisonment for up to 3 years or both.

Section 55A of Art. 48A provides: Penalty in lieu of or in addition to revocation or suspension; restitution. In lieu of or in addition to revocation or suspension of an insurer’s certificate of authority the Commissioner may (1) impose a penalty of not less than one hundred dollars ($100) or more than fifty thousand dollars ($50,000) for each violation of this article on any insurer whose certificate of authority is subject to revocation or suspension under the provisions of this article, and (2) 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). In Veydt v. Lincoln Nat.

Life Ins. Co., 94 Md.App. 1, 6 , 614 A.2d 1318 (1992), the Court explained: 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 ¹⁸ $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 ñnancial injury or damaye as a result of such violation. ” (Emphasis added). Appellants’ counsel, in oral argument, admitted that the wrongs alleged in the third amended complaint are prohibited by the Unfair Trade Practices Act.

Appellants assert, however, that in the case sub judice “it appears that there was concurrent jurisdiction—the Insurance Commissioner as to Violation of the Insurance Code and the Courts as to the tort action.” (Brief, p. 10). Appellants maintain that, although the Insurance Commissioner has jurisdiction, appellants were not required to exhaust administrative remedies before instituting suit. Relying entirely on § 215, appellants argue: In this case, the legislature cannot have been clearer. It has specifically stated that it is not an exclusive remedy by statiny that with reyard to the remedies provided by the Insurance Code for unfair trade practices that as to a cease and desist order of the Commissioner, “No order of the Commissioner pursuant to this section or order of court to enforce it shall in any way relieve or absolve any person affected by such order from any other liability, penalty, or forfeiture under the law.” Art. 48A, § 215(c), MD.ANN.

CODE. What language could be clearer than to say that no one is absolved from other liability or penalty by the remedy provided in this case? This language makes it clear that the legislature did not intend to make this an exclusive remedy which would preclude other common law or even statutory remedy. (Emphasis added).

Section 215 reads, in pertinent part: Cease and desist orders for prohibited practices. (a) When issued.—If, after a hearing thereon of which notice of such hearing and of the charges against him were ¹⁹ given such person, the Commissioner finds that any person in this State has engaged or is engaging in any act or practice defined in or prohibited under this subtitle, the Commissioner shall order such person to cease and desist from such acts or practices. }{: % % $ sfs # (d) Effect of order on other liability, penalty or forfei ture.—No order of the Commissioner pursuant to this section or order of court to enforce it shall in any way relieve or absolve any person affected by such order from any other liability, penalty, or forfeiture under law. (e) Violation of order.—Violation of any such desist order shall be deemed to be and shall be punishable as a violation of this article. (f) Penalties provided by other laws not affected.—This section shall not be deemed to affect or prevent the imposition of any penalty provided by this article or by other law for violation of any other provision of this subtitle, whether or not any such hearing is called or held or such desist order issued.

As mentioned above, appellants argue, based on § 215, that remedies in the Insurance Code for unfair trade practices “are not exclusive remedies.” Three cases refute this contention: Muhl v. Magan, 313 Md. 462 , 545 A.2d 1321 (1988) (Magan I); Veydt, supra; and Magan v. Medical Mutual, 81 Md.App. 301 , 567 A.2d 503 (1989) (Magan II). In Muhl v. Magan (Magan I), supra, the Court was faced with an allegation by Dr. Michael Magan that Medical Mutual Liability Society of Maryland (Medical Mutual) had wrongfully refused to insure him. 313 Md. at 469 , 545 A.2d 1321 . Dr. Magan contended that Medical Mutual’s refusal to provide coverage constituted a violation of Art. 48A, § 234A. That claim, if proven, was “one of the unfair trade practices addressed in Subtitle 15.... ” 313 Md. at 465 , 545 A.2d 1321 .

Dr. Magan filed a complaint with the Insurance Commissioner and requested a hearing pursuant to § 35(2), but the request was denied. An appeal was filed to the circuit court. In the ²⁰ circuit court, both the Insurance Commissioner and Dr. Magan agreed that the court should decide the merits of the case, ie., whether, under applicable law, Medical Mutual was required to issue a policy to Dr. Magan. The Court of Appeals reversed, holding that the circuit court should not have decided the merits of the case before administrative remedies were exhausted by Dr. Magan. 313 Md. at 478-80 , 545 A.2d 1321 .

The lower court appropriately should have decided only if Dr. Magan was entitled to a preliminary hearing. In Magan I, 313 Md. at 465 , 545 A.2d 1321 , the Court of Appeals discussed the comprehensive legislative insurance regulatory scheme set forth in Subtitle 15: With respect to unfair trade practices defined in Subtitle 15, the Commissioner is authorized to issue a cease and desist order against the violator upon a finding of violation after a hearing on notice, including notice of the charges. § 215(a). With respect to undefined unfair trade practices the Commissioner is authorized by § 216 to conduct a hearing, after notice, including notice of charges, and upon finding of violation which is not discontinued, to cause the Attorney General to seek an injunction. In explaining why the circuit court should not have decided the merits of Dr. Magan’s case, the Court went on to say: The remedy which the General