Identifying and Avoiding the Perils of Maryland Insurance Law

The Insurance Commissioner and the People’s Insurance Counsel Division (PICD)

Maryland insurance litigation is different from that of most states due to the impact of the regulatory environment on administrative insurance litigation.  The Maryland Insurance Commissioner (the “Insurance Commissioner”) is charged with the authority and duty to enforce the Maryland Insurance Article. The Insurance Commissioner is authorised to conduct the examinations and investigations necessary to fulfil that purpose.

In addition to direct regulation by the Insurance Commissioner, the Maryland General Assembly created the People’s Insurance Counsel Division (PICD) in the Office of the Attorney General. The PICD exists to protect the interest of persons insured under policies of medical professional liability insurance and homeowner’s insurance issued or delivered in Maryland. The General Assembly charged the PICD with responsibility for reviewing and evaluating each medical professional liability insurance and homeowner’s insurance matter pending before the Insurance Commissioner to determine whether the interests of insurance consumers are affected. The General Assembly further mandated that the PICD review any rate increase of 10% or more by any medical professional liability insurer or homeowner’s insurer. The General Assembly authorised the PICD to appear before the Insurance Commissioner on behalf of insurance consumers. 

The PICD’s right to request a hearing before the Insurance Commissioner and file a petition for judicial review of an adverse decision by the Insurance Commissioner are not entirely clear from the statutory language, but the Supreme Court of Maryland determined the PICD has standing to request a hearing and file a petition for judicial review. Although opposition to a professional liability or homeowner’s filing by the PICD can present additional challenges for insurers, the Supreme Court of Maryland has demonstrated a willingness to correctly apply the law and reject misguided arguments from the PICD. 

The Maryland Insurance Administration (MIA) and the Maryland Insurance Article

The PICD’s authority to appear before the Insurance Commissioner is significant because the Maryland Insurance Administration (MIA), acting under the direction of the Insurance Commissioner, has an entire process set up for processing administrative complaints alleging a violation of the Maryland Insurance Article. Regardless of whether a complaint is initiated by the PICD, a consumer, a professional concerned about professional liability insurance, or an agent, the MIA investigates complaints and makes an initial determination as to whether a violation of the Maryland Insurance Article occurred. Anyone “aggrieved” by that initial investigatory decision, has the right to request a hearing. This will be a quasi-judicial hearing and limited discovery is permitted.

A hearing request, whether filed by the PICD, a consumer, or even an insurer, must set forth “[t]he action or non-action of the Commissioner causing the person requesting the hearing to be aggrieved” and “[t]he ultimate relief requested”. A defective hearing request should result in the denial of a hearing, but this rarely occurs unless an insurer raises the issue in a timely fashion.

The Insurance Article grants the Insurance Commissioner broad remedial powers including the power to (i) impose a fine for each violation that is arbitrary and capricious based on all available information; and (ii) impose penalties for violations committed with a frequency that indicates a general business practice. A party dissatisfied with a final order of the Insurance Commissioner, after a quasi-judicial hearing, can seek judicial review in the Circuit Court. 

Although the administrative litigation process can be burdensome and costly, a person claiming to be aggrieved by an insurer’s alleged violation of the Insurance Article cannot invoke the original jurisdiction of a trial court.  Rather, they must pursue and exhaust the administrative remedies expressly provided in the Insurance Article. Where the General Assembly has provided a special form of remedy and has established a statutory procedure before an administrative agency for a special kind of case, a litigant must ordinarily pursue that form of remedy and not bypass the administrative official.

The Supreme Court of Maryland has confirmed Maryland’s strong public policy requiring the pursuit and exhaustion of administrative remedies before a litigant can pursue a judicial action:

“[W]hen the Legislature enacts a comprehensive remedial scheme in which a claim is to be determined by an administrative agency and reviewed in an administrative appeal before judicial review is available, it establishes, as public policy, that such a procedure produces the most efficient and effective results. In order to effectuate this public policy, trial courts generally should not act until there has been compliance with the statutory comprehensive remedial scheme.”

A private party cannot circumvent the comprehensive remedial scheme established under the Insurance Article by pursuing a private cause of action for damages. If a statute provides a special form of remedy, then a plaintiff must use that form rather than any other. In other words, when a statutory remedy is provided, that remedy is exclusive. An individual cannot, therefore, in addition to the statutory remedy, pursue a tort action for damages in court based on the same issues advanced or that should have been advanced in the administrative proceedings. The Supreme Court of Maryland has referred to state insurance laws regulating claims practices as “in the nature of governmental regulations... [that do] not create private rights of action.” 

Common law claims independent of the Insurance Article

The Supreme Court of Maryland, however, has recognised that common law claims for fraud, negligent misrepresentation, and negligence arising out of the sale of insurance, that are independent of the Insurance Article, are not subject to the requirement of pursuit and exhaustion of administrative remedies. The point is that common law claims are not subject to the doctrine of pursuit and exhaustion of administrative remedies.

Although the complex administrative litigation environment can sometimes be challenging, Maryland does not recognise an action against an insurer for bad faith failure to pay a first-party insurance claim. Maryland has made a considered decision not to recognise a tort action for bad faith failure to settle with an insured in the first-party context. Even a bad faith negligence claim against an insurer by a third-party beneficiary is considered a “first party” claim because the beneficiary “stands in the shoes of the insured”.  This is important, again, because Maryland does not recognise a tort action against an insurer for bad faith failure to pay an insurance claim. 

The Supreme Court of Maryland has further recognised that the duty owed by an insurer who “mistakenly denies coverage... to the insured” is “entirely contractual”. An insurer’s mistaken failure to provide a defence based on the belief that there is no insurance contract or no insurance coverage exists does not give rise to a tort claim for bad faith. Any such claim is contractual, and limited to the coverage policy limits and defence costs.

Maryland law further holds that the insured-insurer relationship is not fiduciary in nature. Moreover, in the absence of a special (fiduciary) relationship between the parties, Maryland courts have not ordinarily been willing to impose an affirmative duty to protect the interests of another. 

Claims for lack of good faith

Property and casualty insurance policies and individual disability insurance policies issued, sold or delivered in Maryland, however, can be the subject of a statutory claim for lack of good faith. Good faith is defined by statute to mean: “an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim”. As a matter of law, however, an insurer cannot be found to have failed to act in good faith based on any delay in determining coverage or payment, if the insurer acted within the time specified by statute or regulation. 

In a lack of good faith action, an insured can recover “actual damages”, up to the policy limits, along with attorneys’ fees, expenses, litigation costs, and interest. This claim is again subject to an administrative exhaustion requirement. For this reason, a Circuit Court action cannot be commenced until after a final decision by the MIA. Any appeal of the MIA decision to the Circuit Court is de novo. A party also has the option to elect to have the case tried by a jury in the Circuit Court. 

Bad faith claims

Maryland recognises a tort claim for bad faith in connection with third-party liability insurance. An automobile liability insurer, for example, may be subject to a claim of bad faith if it fails to resolve a claim within policy limits.  Maryland has not, however, allowed premature filing of bad faith claims where there has been no excess judgment and the insurer is continuing to provide a defence. Maryland also recognises that an insurer’s offer to settle for the policy limits before entry of an excess verdict will generally insulate an insurer from a bad faith claim. 

The insurance producer protection law

Maryland’s unique legal landscape creates additional barriers to property and casualty insurers’ ability to place restrictions on underperforming insurance producers both directly through laws protecting insurance producers and indirectly through laws preventing discrimination in underwriting. Maryland’s insurance producer protection law restricts a property and casualty insurer’s ability to cancel or amend a written agreement with an insurance producer because of an adverse loss ratio. Maryland’s insurance producer protection law also prohibits insurers from cancelling or amending an agreement with an insurance producer, or refusing to accept business from an insurance producer, for arbitrary, capricious, unfair or discriminatory reasons. 

Obligations of insurers with underwriting guidelines and a filed rating plan

Maryland laws aimed at preventing underwriting discrimination prohibit insurers from cancelling or refusing to underwrite or renew particular insurance risks or classes of risk except by application of standards reasonably related to the insurers’ economic and business purposes. The MIA has interpreted the “economic and business purposes” standard to prohibit an insurer from refusing to write a risk if the insurer has a filed rate applicable to that risk. In other words, if an insurer’s rating rules provide a rate for a risk, then the insurer cannot reject the risk. Similarly, an insurer may not apply underwriting guidelines, whether directly or through its agents, that would result in declination or non-renewal of a risk for which the insurer has a rating factor. 

The MIA has sanctioned insurers for restricting an agent’s ability to place business with the insurer when the restriction results in the agent not placing business with the insurer that qualifies under the insurer’s underwriting guidelines and for which the insurer has a filed rate. This is true regardless of whether the insurer characterises the restrictions as profitability initiatives, adjustments to underwriting parameters to account for loss ratios, and/or placing policy volume constraints on selected agencies. Still further, insurers cannot encourage appointed agents to adopt agency underwriting guidelines that are inconsistent with the insurer’s general underwriting guidelines and filed rates, or apply agency-specific underwriting requirements, underwriting scores, loss ratio benchmark requirements, or agency disciplinary programmes that might result in an agency not placing business with the insurer that qualifies under the insurer’s company-wide underwriting guidelines and filed rating plan. 

Insurers seeking to take agency-specific actions, whether formal or informal, must be careful not to run afoul of Maryland’s prohibition on the application of loss-ratio standards and avoid taking action that requires or encourages agencies not to place business with the insurer that qualifies under the insurer’s underwriting guidelines and filed rating plan. If an agency files a complaint with the MIA, then the same administrative litigation process discussed above applies. 

Supreme Court decisions

From a traditional judicial litigation perspective, the Supreme Court of Maryland has long followed the law of objective interpretation of contracts.  The Supreme Court of Maryland’s recent insurance decisions continue to reflect the court’s contract-focused perspective. 

In the Matter of Featherfall Restoration, LLC, 419 Md. 586 (2025), for example, the Supreme Court of Maryland examined an anti-assignment clause in a homeowner’s insurance policy issued by Travelers Home and Marine Insurance Company (“Travelers”). The policy’s anti-assignment clause provided that “assignment of this policy will not be valid unless we give our written consent”. The insured notified the insurer of damages to a roof and claimed the damages were the result of a windstorm. The same day, the insured hired Featherfall Restoration, LLC (“Featherfall”) to repair the roof.  Travelers’ representative found no signs of storm damage to the roof, and instead observed wear, tear and deterioration. As a result, the insurer denied the claim. 

Featherfall provided Travelers with an “Assignment of Claim” form executed by the insured, purporting to “irrevocably transfer, assign, and set over onto [Featherfall] any and all insurance rights, benefits, proceeds, and any causes of action under applicable insurance policies”. Travelers refused to recognise the assignment, citing the anti-assignment clause in the policy. Featherfall then filed an administrative complaint with the MIA. Featherfall did not challenge the merits of the denial of the claim, but instead asked the MIA to compel Travelers to honour the assignment and Featherfall’s right to act in place of the insureds. Featherfall asserted that Travelers had violated Maryland’s prohibition on unfair claim settlement practices.

The Insurance Commissioner ruled the assignment was void under the anti-assignment clause, and that Travelers’ handling of the claim complied with Maryland law. The Maryland Circuit Court affirmed the Insurance Commissioner’s decision and the Maryland Appellate Court also affirmed this.  Since Featherfall’s assignment was not valid, the Appellate Court held Featherfall was not an “aggrieved person” and lacked standing to challenge Travelers’ actions with respect to the claim denial.

The Supreme Court of Maryland disagreed. Noting that Maryland law distinguishes between a contract and a claim arising under a contract, the Supreme Court held the insured’s post-loss claim for money payments under the policy was a “chose in action” distinct from the contract instrument from which it arose. The court reasoned that “notwithstanding the Assignment, the Policyholders still had coverage under the policy for other losses” and that the assignment to Featherfall was limited to the rights with respect to the specific claim at issue. Therefore, the anti-assignment clause prohibiting assignment of “this policy” did not bar the assignment to Featherfall of a single post-loss claim under the policy. Since Featherfall was a valid assignee, it had standing as an aggrieved party to request a hearing to challenge the MIA’s determination. As a result, the Supreme Court reversed the Insurance Commissioner’s ruling and remanded the matter for pursuit and exhaustion of the administrative proceedings.

The Supreme Court of Maryland’s contract-focused perspective is further borne out by the court’s recent decision in Government Employees Insurance Company, et al v MAO-MSO Recovery II, LLC, Series PMPI, et al, 491 Md. 221 (2025). In that case, the Supreme Court was called upon to respond to a certified legal question from two consolidated federal court class action lawsuits. The certified question focused on the validity of an assignment of the right to seek reimbursements from the Government Employees Insurance Company (GEICO) and its affiliates, as primary payers, for conditional payments made by Medicare Advantage Organizations (MAOs) for medical expenses incurred by MAO members. 

As a general rule, under the Federal Medicare Secondary Payer Act, Medicare is a secondary payer of medical expenses when a Medicare beneficiary has coverage from an insurer other than Medicare. As a secondary payer, Medicare is only responsible for any remaining costs of care in excess of those covered by a primary payer. MAOs, operating under Medicare Part C, provide Medicare coverage to beneficiaries under contracts with the Centers for Medicare and Medicaid Services (“CMS”) and are considered secondary payers. Like Medicare, they can make conditional payments and seek reimbursement from primary payers. 

The plaintiff entities were established in an effort to recover, through litigation or otherwise, unpaid reimbursements for MAOs and other secondary payers. To recover such funds, plaintiffs effectuated “Claims Cost Recovery Agreements” (the “Assignments”) under which their secondary-payer clients (the “Assignors”) assigned to plaintiffs their rights to seek and receive reimbursement from the primary payers, and granted the plaintiffs control over any litigation conducted. The Assignments did not purport to assign claims against a specific identified party, and the Assignors were either not aware of whether they had claims or how many claims they had at the time of the Assignments. 

In the consolidated federal class action, plaintiffs sought to recover thousands of conditional payments made by MAOs – and assigned to plaintiffs through the Assignments – for medical expenses that plaintiffs alleged GEICO was legally obliged to reimburse as a primary payer.  The defendants argued the Assignments were void as they went against Maryland public policy. 

The Supreme Court focused on the language in the barratry statute, noting that the plaintiffs did not solicit any secondary payer to file a lawsuit, but rather obtained the right to bring suit against primary payers in the plaintiffs’ own names based on the Assignments. Since the plaintiffs had not violated the barratry statute, the court held the Assignments were not barred by public policy.

The Supreme Court further rejected GEICO’s argument that the Assignments were void as being against general Maryland public policy. The court explained that “Maryland public policy does not prevent sophisticated parties like Plaintiffs and the assignors from striking a bargain they both deem valuable. Put another way, Plaintiffs’ assignments are not sufficiently ‘officious’ as to warrant invalidation. And it certainly is not the case that litigation designed to recover reimbursement of Medicare payments is useless”. The court explained “to the extent Maryland retains a policy under common law that prohibits a scheme ‘to stir up and promote litigation for the benefit of the promoter rather than for the benefit of the real party in interest... that policy, at least in general, does not apply to litigation conducted by an assignee.’”

Conclusion

Maryland insurance litigation can present complex choice of forum questions.  In addition, many of the regulatory and statutory deadlines are jurisdictional and failure to strictly adhere can be fatal. Engaging experienced insurance counsel is therefore critical to identifying and avoiding the perils that are a part of Maryland insurance law.