Can Maryland's Insurance Commissioner discipline or overrule the Maryland Automobile Insurance Fund (MAIF) the same way it regulates private car insurers?
Apply this to your situation
This page answers the general question as of 2000. Ezel answers yours: what it means for your facts, under current Maryland law, with citations.
Plain-English summary
Insurance Commissioner Steven Larsen asked the Attorney General to sort out the regulatory relationship between his office and the Maryland Automobile Insurance Fund (MAIF), the state-created insurer of last resort for drivers who cannot get coverage in the private market. He asked four related questions: whether the Unfair Claim Settlement Practices Act applies to MAIF and lets the Commissioner sanction it, whether the Commissioner can review MAIF's decisions to cancel a policy going forward, whether the Commissioner can review MAIF's decisions to void a policy retroactively (from its start), and whether the Commissioner can fine MAIF or its insurance producers for other violations like rating or underwriting problems.
The opinion's starting point was that MAIF operates under the same regulatory scheme as a private insurer except where the law explicitly or implicitly says otherwise, a position this Office had taken since shortly after MAIF's creation in 1972. Applying that baseline, the opinion concluded the Unfair Claim Settlement Practices Act does apply to MAIF, so the Commissioner can order MAIF to stop an unfair practice and pay restitution tied to a broken contractual obligation, but cannot revoke MAIF's authority to do business (since MAIF has no certificate of authority to revoke) and cannot fine MAIF absent a clear legislative waiver of sovereign immunity for that particular penalty.
On cancellations, the opinion found the MAIF statute's own appeal process, a special three-member board that includes the Commissioner or a designee, is the exclusive route for challenging a prospective cancellation, so the Commissioner has no separate independent review power there. Retroactive voiding of a policy (treating it as if it never existed) is different: the opinion traced a line of prior opinions and the Court of Appeals' Van Horn decision limiting insurers' common-law rescission rights, concluded MAIF retains a narrower right to void a policy for deliberate misrepresentation about eligibility, and held that once MAIF uses that power to deny an already-filed claim, the Commissioner can review whether MAIF's finding of deliberate misrepresentation was an "arbitrary and capricious" reason to deny the claim, unless a court has already approved the retroactive cancellation. Finally, on other violations, the opinion set out a general method (check whether MAIF is regulated like any other insurer for that particular provision, then check which remedies actually fit) rather than resolving every possible violation.
Currency note
This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, penalty amount, or procedural deadline mentioned here. Notably, the opinion itself carries a later editor's note that the Court of Special Appeals addressed MAIF's authority to void a policy ab initio in a 2002 decision, MAIF v. Lumbermen's Mutual Casualty Co., after this opinion issued.
Common questions
Does Maryland's Insurance Commissioner regulate MAIF the same way it regulates a normal car insurance company?
Mostly, according to this opinion. It concluded MAIF is treated as an "insurer" subject to the same general regulatory scheme as private insurers unless a specific statute says otherwise, so the Commissioner's authority extends to MAIF's claim-handling practices, but not to remedies tied to a certificate of authority (like revocation), since MAIF is created by its own statute rather than licensed the normal way.
Can a driver complain to the Insurance Commissioner if MAIF mishandles their claim?
Yes, according to this opinion. It found the Unfair Claim Settlement Practices Act applies to MAIF, so the Commissioner can investigate complaints about MAIF's claims practices and order MAIF to stop an unfair practice and make restitution for actual economic damage tied to a breach of the policy's terms.
If MAIF cancels or voids someone's policy, can the Commissioner overrule that decision?
It depends on the type of cancellation, according to this opinion. For an ordinary forward-looking cancellation, the Commissioner has no independent review power outside the MAIF statute's own three-member appeal board. But if MAIF retroactively voids a policy for fraud after a claim was already filed, the Commissioner can review whether that finding of deliberate misrepresentation was an arbitrary and capricious reason to deny the claim.
Can the Commissioner fine MAIF the way it fines other insurance companies?
Generally no, according to this opinion. It concluded the Commissioner lacks clear authority to fine MAIF absent a legislative waiver of sovereign immunity specific to that penalty, though the Commissioner can still order MAIF to make restitution to a wronged claimant.
Background and statutory framework
MAIF was created in 1972 as part of a broad overhaul of Maryland's automobile insurance laws that also created the compulsory motor vehicle insurance requirement, giving MAIF two roles: acting as an ordinary insurer for drivers who cannot get private coverage, and as successor to the state's prior fund for paying judgments against uninsured or unidentified motorists. Since a series of 1973 opinions issued shortly after MAIF's creation, this Office has treated MAIF as subject to the same general insurance regulatory scheme as private insurers, based on the Insurance Article's broad definitions of "insurer" and explicit references throughout the MAIF statute to the Commissioner's oversight, except where the General Assembly has carved out a specific exception, such as MAIF's exemption from risk-based capital standards, general rate-setting provisions, and the standard private-insurer cancellation and appeal procedure under Insurance Article §27-605.
The opinion's discussion of retroactive cancellation draws heavily on the history of the common-law right of rescission for material misrepresentation, a 1986 Attorney General opinion concluding the compulsory insurance law limited that right for private insurers, and the Court of Appeals' 1994 decision in Van Horn v. Atlantic Mutual Insurance Company holding that right abrogated entirely as to innocent third-party claims because it conflicted with the statutory design of continuous, uninterrupted motor vehicle insurance coverage. The opinion distinguished MAIF from a private insurer for this purpose, since MAIF is itself the insurer of last resort a rescinding private insurer's customers would otherwise turn to, meaning abrogating MAIF's own narrower rescission right (limited to deliberate misrepresentation) is not necessary to preserve that same continuous-coverage policy.
Citations and references
Statutes:
- Insurance Article, §1-101(v) and §1-101(bb), defining "insurer" and "person" for purposes of determining MAIF's coverage under the Insurance Article
- Insurance Article, §20-502(a) and §20-502(e)(1), MAIF's eligibility criteria and the "void" provision for ineligible applicants
- Insurance Article, §20-509(e) and (f), the 60-day review period and notice requirements for MAIF cancellations
- Insurance Article, §20-516, MAIF's authority to cancel a policy "at any time" for nonpayment or license suspension/revocation
- Insurance Article, §20-517, the special three-member appeal board for MAIF cancellation decisions
- Insurance Article, §27-301 et seq., the Unfair Claim Settlement Practices Act
- Insurance Article, §27-302, the Act's scope
- Insurance Article, §27-303 and §27-304, the two categories of unfair claim settlement practices
- Insurance Article, §27-305, penalties under the Act, including restitution
- Insurance Article, §27-103, cease and desist order authority
- Insurance Article, §4-113 and §4-114, certificate of authority suspension, revocation, fines, and orders to stop writing insurance
- Insurance Article, §27-605, the private-insurer cancellation "protest" procedure from which MAIF is excluded
- Insurance Article, §11-303(a)(7), MAIF's rate approval requirement
- Insurance Article, §11-323, MAIF's geographic distribution data filing requirement and associated penalties
- State Government Article, §12-201, the general waiver of sovereign immunity in contract actions
Cases:
- Government Employees Insurance Company (GEICO) v. Insurance Commissioner, 273 Md. 467, 480, 330 A.2d 653 (1975), on MAIF's creation as part of the 1972 insurance law overhaul
- Jennings v. Government Employees Insurance Company (GEICO), 302 Md. 352, 356, 488 A.2d 166 (1985), on MAIF's role providing coverage unavailable in the private market
- Harrison v. Motor Vehicle Administration, 302 Md. 634, 639, 490 A.2d 694 (1985), on MAIF's role as successor to the Unsatisfied Claim and Judgment Fund
- MAIF v. Perry, 356 Md. 668, 741 A.2d 1114, 1118 (1999), summarizing the purpose of the compulsory insurance law and MAIF's role
- Unnamed Physician v. Commission on Medical Discipline, 285 Md. 1, 12, 400 A.2d 396 (1979), on when the term "person" in a statute includes a State agency
- Board of Child Care v. Harker, 316 Md. 683, 690-91, 561 A.2d 219 (1989), on binding the State only with a clear legislative intention
- Mesmer v. MAIF, 353 Md. 241, 725 A.2d 1053, treating actions against MAIF like actions against any other liability insurer and noting the open question of MAIF's tort-based sovereign immunity
- ARA Health Services v. Department of Public Safety and Correctional Services, 344 Md. 85, 91-92, 685 A.2d 435 (1996), the two-part test for whether sovereign immunity bars a claim
- Magan v. Medical Mut. Liab. Ins. Soc. of Maryland, 331 Md. 535, 629 A.2d 626, on restitution as a remedy against unjust enrichment
- A.S. Abell Publishing Co. v. Mezzanote, 297 Md. 26, 35, 464 A.2d 1068 (1983), on the multi-factor sovereign immunity analysis
- Central Collection Unit v. DLD Associates Ltd. Partnership, 112 Md. App. 502, 685 A.2d 873 (1996), on sovereign immunity analysis
- Romm v. Flax, 340 Md. 690, 668 A.2d 1 (1995), construing the term "void" in a statute to mean voidable at a party's option
- Van Horn v. Atlantic Mutual Insurance Company, 334 Md. 669, 641 A.2d 195 (1994), holding the compulsory insurance law abrogated an insurer's common-law right to void a policy ab initio as to innocent third parties
- Marriott Employees Federal Credit Union v. Motor Vehicle Administration, 346 Md. 437, 445, 697 A.2d 455 (1997), on judicial deference to a longstanding agency regulatory interpretation
- MAIF v. Lumbermen's Mutual Casualty Co., 148 Md. App. 690, 814 A.2d 52 (2002), the Court of Special Appeals decision discussed in this opinion's later editor's note
Source
- Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
- Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/2000/85oag132.pdf
Original opinion text
132 [85 Op. Att'y
INSURANCE
M ARYLAND A UTOMOBILE I NSURANCE F UND – I NSURANCE
C OMMISSIONER'S A UTHORITY TO R EGULATE MAIF U NDER
THE U NFAIR C LAIMS S ETTLEMENT P RACTICES A CT
May 24, 2000
Mr. Steven Larsen
Insurance Commissioner
You have requested our opinion on the relationship between
the Maryland Insurance Administration and its head, the Insurance
Commissioner, on the one hand, and the Maryland Automobile
Insurance Fund ("MAIF" or "the Fund"), on the other hand, in four
areas. First, with respect to consumer complaints concerning the
settlement of claims, you ask whether the Unfair Claim Settlement
Practices Act applies to MAIF and, more specifically, whether the
Commissioner may sanction MAIF for violations of that Act.
Second, you ask whether the Commissioner may review a MAIF
decision to cancel a policy prospectively. Third, you ask whether the
Commissioner may reverse or modify a MAIF decision to void a
policy ab initio. Finally, you ask whether the Commissioner may
order MAIF or its producers to make restitution or to pay fines for
other violations of the Insurance Article, such as those related to
rating or underwriting.
In our opinion, the Unfair Claim Settlement Practices Act
applies to MAIF. If the Commissioner finds that MAIF has violated
the Act, the Commissioner may order MAIF to discontinue the
unfair practice, and to make restitution to a claimant based on a
violation of the Insurance Article that relates to a failure by MAIF
to abide by its contractual obligations in an insurance policy. Other
remedies ordinarily available to the Commissioner under the Act,
such as revocation of an insurer's certificate of authority, do not
pertain to MAIF.
With respect to MAIF's cancellation of a policy, the MAIF
statute provides the exclusive procedure for administrative review.
That statute assigns to the Fund, and a special appeal board, the
application of the statutory eligibility criteria for MAIF coverage;
the Commissioner has no independent review authority. Nor would
the Commissioner ordinarily have authority to review a MAIF
Gen. 132] 133
decision to void a policy ab initio on the grounds that the insured
deliberately misrepresented eligibility for MAIF insurance.
However, when MAIF rescinds a policy after a claim has been filed,
the Commissioner has authority under the Unfair Claim Settlement
Practices Act to review MAIF's finding of deliberate
misrepresentation, unless MAIF has obtained court approval for the
retroactive cancellation of the policy.
Finally, the Commissioner may impose administrative
sanctions on MAIF or its producers for other violations of the State
insurance law if, under the principles outlined in this opinion, the
relevant provision of the Insurance Article explicitly or implicitly
grants the Commissioner administrative authority over MAIF or its
producers.
I
MAIF
A. Creation and Purpose of MAIF
MAIF was created in 1972 as part of a "sweeping overhaul" of
the automobile insurance laws in Maryland. Chapter 73, Laws of
Maryland 1972, now codified at Annotated Code of Maryland,
Insurance Article ("IN"), §§20-101 et seq.; Government Employees
Insurance Company (GEICO) v. Insurance Commissioner, 273 Md.
467, 480, 330 A.2d 653 (1975). As part of that overhaul, the
General Assembly also enacted the compulsory motor vehicle
insurance law, which requires that each owner of an automobile
registered in Maryland maintain a liability insurance policy with
specified minimum coverage. See Annotated Code of Maryland,
Transportation Article ("TR"), §17-101 et seq.; see generally 85
Opinions of the Attorney General 3 (2000); 71 Opinions of the
Attorney General 173, 175-76 (1986).
MAIF's enabling statute assigned two roles to MAIF. First,
the Fund was designed to supplant the previous assigned risk plan
and to make automobile liability insurance available to Maryland
drivers unable to obtain insurance in the private sector. IN §20-
301(a); Jennings v. Government Employees Insurance Company
(GEICO), 302 Md. 352, 356, 488 A.2d 166 (1985). In this capacity
MAIF acts like other insurers, it issues policies, charges and
collects premiums, and adjusts, settles, and pays claims.
134 [85 Op. Att'y
Second, as successor to the Unsatisfied Claim and Judgment
Fund, MAIF was designated to pay, "within specified limits,
judgments entered against: (a) uninsured motorists; (b) known
motorists beyond the reach of legal process; and (c) unknown
operators of undiscovered vehicles." Harrison v. Motor Vehicle
Administration, 302 Md. 634, 639, 490 A.2d 694 (1985). See also
GEICO, 273 Md. at 480; Janquitto, Maryland Motor Vehicle
Insurance (2d ed.) at p. 855.
The Court of Appeals recently summarized the purpose of the
compulsory insurance law and MAIF's role within it:
The thrust of the 1972 law was to extend ...
insurance protection .... The Maryland
response to the problem of uninsured
motorists was the creation of MAIF, to
provide insurance for those persons who could
not obtain it in the private market, the
preclusion of arbitrary cancellations and non-
renewals of policies by private insurers, and
the civil and criminal penalties attached to
owning or driving an uninsured vehicle.
MAIF v. Perry, 356 Md. 668, 741 A.2d 1114, 1118 (1999).
B. Regulation of MAIF as an Insurer
As a general rule, MAIF in its capacity as an automobile
liability insurer operates under the same regulatory scheme as a
private sector insurer, except where the General Assembly has
explicitly provided otherwise. This conclusion, which is supported
by the general design of the Insurance Article, has been the
longstanding interpretation of this Office.
First, MAIF falls within the definition of "insurer" set forth in
the Insurance Article. Under that definition, an insurer is any "person
engaged as indemnitor, surety, or contractor in the business of
entering into insurance contracts." IN §1-101(v). The MAIF statute
makes clear that MAIF is in the business of entering into insurance
contracts: "[o]n payment of the premium set by the Fund, the Fund
is authorized to and shall sell, issue, and deliver a[n automobile
liability insurance] policy." IN §20-502. The only question is
whether MAIF is a "person" for purposes of the Insurance Article.
Gen. 132] 135
The Insurance Article defines "person" as "any individual,
receiver, trustee, guardian, personal representative, fiduciary,
representative of any kind, partnership, firm, association,
corporation, or other entity." IN §1-101(bb). At first blush, this
definition appears broad enough to encompass MAIF. On the other
hand, MAIF is considered a State agency for various purposes[1], and
ordinarily the term "person" in a statute does not include a State
agency "unless an intention to include these entities is made manifest
by the Legislature." Unnamed Physician v. Commission on Medical
Discipline, 285 Md. 1, 12, 400 A.2d 396 (1979). See also Board of
Child Care v. Harker, 316 Md. 683, 690-91, 561 A.2d 219 (1989)
("the State is not bound by an enactment of the General Assembly
unless the enactment specifically names the State or manifests a
clear and indisputable intention that the State is to be bound"); 85
Opinions of the Attorney General 3, 7 (2000).
The General Assembly has made clear in several provisions of
the Insurance Article that MAIF is subject to regulation as an insurer
by the Commissioner.[2] See, e.g., IN §2-104 (Commissioner may
require various types of insurers, including MAIF, to pay
administrative cost of licensing services); IN §2-502 (MAIF defined
as "insurer" for purposes of assessment of insurance regulation fee);
IN §6-101 (MAIF subject to premium tax assessed against insurers).
Most persuasive are explicit references in the MAIF statute itself to
the Commissioner's regulatory authority over MAIF. For example,
in providing that MAIF is subject to an independent audit by the
Legislative Auditor, the statute states that such an audit "is in
addition to and not instead of any audit or regulatory authority of the
Commissioner." IN §20-304(c). Moreover, the insurance premiums
that MAIF charges are "subject to the approval of the
Commissioner." IN §20-507(a)(3). These provisions support the
conclusion that the Commissioner generally has the same regulatory
authority over MAIF as over any other automobile liability insurer.[3]
In a series of opinions issued shortly after the creation of
MAIF, Attorney General Burch examined the nature of the Fund and
concluded that, as an automobile liablity insurer, the Fund operates
within the same legal framework as a private sector insurer,
including regulation by the Commissioner, except where the General
Assembly has explicitly, or by necessary implication, provided
otherwise. In determining that MAIF funds are not State monies, a
1973 opinion explained that "MAIF is an independent enterprise
engaged in the business of an automobile liability insurer [and]
operates according to standard procedures in the casualty insurance
business." 58 Opinions of the Attorney General 88, 89-90 (1973).
A later opinion concluded that the Comptroller has no authority, and
the State Treasurer only limited responsibility, with respect to
MAIF's monies, reasoning that MAIF's finances are subject to
regulation by the Commissioner. 58 Opinions of the Attorney
General 417 (1973). That opinion stated that "[t]he Legislature
necessarily had to give MAIF the same power to deal with its
receipts as is possessed by any other automobile casualty insurance
carrier since such insurance companies, and MAIF is not exempted,
are closely regulated by the Insurance Commissioner ...." Id. at 423.
A third opinion that same year summarized:
[T]he legislative intent was that MAIF be
governed by the same rules and regulations
pertaining to the insurance industry generally
except where [the MAIF subtitle] (or any
other statute specifically mentioning MAIF)
otherwise provides.
58 Opinions of the Attorney General 427 (1973).[4]
II
The Unfair Claim Settlement Practices Act and MAIF
A. Application of the Act to MAIF
More than a decade after the creation of MAIF, the Legislature
enacted the Unfair Claim Settlement Practices Act ("the Act") to
provide an administrative remedy for consumer complaints about a
variety of unfair practices by insurers.[5] Chapter 442, Laws of
Maryland 1986, now codified at IN §§27-301 et seq. The Act
identifies violations in two categories. First, it defines certain
actions, for example, misrepresentation of policy provisions or
refusal to pay a claim for an arbitrary and capricious reason, that,
by their very nature, are unfair claim settlement practices. IN §27-
303. Second, it specifies other actions that, when "committed with
the frequency to indicate a general business practice," constitute
unfair claim settlement practices. IN §27-304. The Act also sets
forth various penalties that may be imposed to remedy a violation of
the Act. IN §27-305.
The scope of the Act is broad. It applies to:
[E]ach individual or group policy, contract, or
certificate of an insurer or nonprofit health
service plan that:
(1) is delivered or issued in the State;
138 [85 Op. Att'y
(2) is issued to a group that has a main
office in the State; or
(3) covers individuals who reside or
work in the State.
IN §27-302(a). However, the Act does not apply to reinsurance,
workers' compensation insurance, or surety insurance. IN §27-
302(b).
The Legislature did not explicitly exclude MAIF from the Act.[6]
Nor is there anything in the legislative history of the Act to suggest
that the General Assembly contemplated that MAIF, a major
provider of automobile liability insurance in the State,[7] would be
exempt. The absence of a blanket exclusion of MAIF is significant,
as the General Assembly has explicitly exempted MAIF from certain
other requirements of the insurance law. See, e.g., IN §4-301(d)(2)
(exempting MAIF from risk-based capital standards applicable to
other insurers); IN §11-303(a)(7) (exempting MAIF from rate-
making provisions); IN §27-605 (exempting MAIF from
cancellation procedures that apply to other automobile liability
insurers).
In each of these instances in which it has exempted MAIF from
a provision that otherwise applies generally to insurers, the
Legislature has addressed the particular issue in the MAIF statute
itself. For example, MAIF is excluded from the risk-based capital
standards applicable to other insurers. IN §§4-301 et seq. Instead,
detailed provisions of the MAIF statute govern maintenance of Fund
accounts. IN §§20-301 through 20-411. Similarly, while MAIF is
excluded from the general rate-setting provisions of IN §§11-301 et
seq., it must set its rates in accordance with criteria set forth in IN
§20-507, subject to the approval of the Commissioner. Finally,
while MAIF is exempt from the cancellation rules of IN §27-605
that apply to other insurers, it is subject to the special cancellation
rules of IN §§20-516 and 20-517. By contrast, the MAIF statute
contains no alternative administrative mechanism for resolution of
complaints of unfair claim settlement practices.
Thus, although the Act does not explicitly state that it applies
to complaints against MAIF, neither does it exempt MAIF from its
scope. Further, nothing in the MAIF statute or any other section of
the Insurance Article explicitly or implicitly exempts MAIF from the
Act's coverage. In our opinion, the Legislature intended to
encompass the Fund within the Unfair Claim Settlement Practices
Act. Therefore, as an insurer, MAIF is subject to the Act and to the
Commissioner's authority to investigate[8] and resolve complaints
concerning its claim settlement practices.
B. Commissioner's Authority to Sanction MAIF
To remedy an unfair practice, the Commissioner may impose
various penalties depending on the nature of the violation. IN §27-
305.[9] If the Commissioner finds that an insurer has committed a
specific unfair practice in violation of IN §27-303, the
Commissioner may issue a cease and desist order, impose a penalty
of up to $2,500 per violation, and require the violator to make
restitution to each claimant. IN §§27-103, 27-305(a), (c).
For a general business practice that violates IN §27-304, the
statute cross-references a variety of administrative remedies found
in other sections of the Insurance Article.[10] IN §27-305(b). In
particular, the Commissioner may issue a cease and desist order
mandating that the insurer discontinue the unfair practice (IN §27-
103); impose a monetary penalty ranging from $100 to $125,000 for
each violation (IN §4-113(d)); require the violator to make
restitution to a claimant (IN §§4-113(d) and 27-305(c)); suspend,
revoke, or refuse to renew the insurer's certificate of authority (IN
§4-113); and issue a cease and desist order prohibiting the insurer
from writing insurance in the State (IN §4-114).
Although the Act applies generally to MAIF, it does not
necessarily follow that all penalties in the Act may be imposed
against the Fund. Some of the penalties are inapplicable to MAIF,
given its statutory mandate and the basis of its operating authority.
1. Cease and Desist Orders
The most basic remedy in the Commissioner's arsenal is the
authority to order the violator to halt the practice. Upon finding that
a person has engaged or is engaging in conduct in violation of the
Insurance Article, the Commissioner "shall order the person to cease
and desist from the act or practice." IN §27-103(a). MAIF is not
explicitly excepted from this provision nor is there any reason to
imply an exception. Absent the ability to order termination of
unlawful conduct, the Commissioner's regulatory authority over
MAIF could be meaningless. In our judgment, the Commissioner
has authority to order MAIF to cease and desist from violating the
Act.
2. Suspension or Revocation of Certificate of Authority
The Commissioner's powers under IN §4-113(a) and (b) to
suspend, revoke, or refuse to renew a certificate of authority do not
apply to MAIF. A certificate of authority is an authorization by the
Commissioner for an insurer to do business in Maryland. IN §§1-
101(l), 4-101. By contrast, MAIF is a statutorily created insurer that
does not operate under a certificate of authority. See Special
Revisor's Note to IN §1-101(h) (MAIF "is authorized by statute to
issue policies .... [H]owever, [MAIF] does not hold a certificate of
authority ...."); §4-101 ("Except as otherwise provided in this article,
a person may not act as an insurer ... unless the person has a
certificate of authority ...." (emphasis added)). Accordingly,
remedies directed to a certificate of authority cannot be imposed on
MAIF.
3. Order to Stop Writing Insurance
Under IN §4-114, upon making certain findings,[11] the
Commissioner may order an insurer who has violated IN §27-304
"immediately to cease and desist from writing insurance." MAIF is
not explicitly exempted from this remedy. However, in creating
MAIF as the automobile insurer of last resort, the General Assembly
directed that the Fund shall issue a policy to an eligible applicant.
IN §20-502(a). There is no indication in the Insurance Article that
the General Assembly intended to authorize the Commissioner to
prevent MAIF from issuing new insurance policies, based upon
problems with the settlement of claims under existing policies.
Absent a clear directive by the General Assembly, we conclude that
the Commissioner may not issue an order under IN §4-114 to
prevent MAIF from writing insurance policies altogether.
4. Restitution
The Commissioner's authority to require the Fund to make
restitution turns on whether sovereign immunity would prohibit an
award of monetary relief against MAIF. "The applicability of
sovereign immunity in a particular case ... turns on: (1) whether the
entity asserting immunity qualifies for its protection; and, if so, (2)
whether the legislature has waived immunity, either directly or by
necessary implication, in a manner that would render the defense of
immunity unavailable." ARA Health Services v. Department of
Public Safety and Correctional Services, 344 Md. 85, 91-92, 685
A.2d 435 (1996). In our opinion, even if MAIF is otherwise
protected by sovereign immunity,[12] the General Assembly has
waived any immunity that MAIF may enjoy against an order of
restitution by the Commissioner based upon contract principles.
MAIF enters into insurance contracts with those that it insures.
"In Maryland, insurance policies are treated like other contracts."
Mesmer v. MAIF, 353 Md. 241, 252, 725 A.2d 1053 (1999). A
dispute about the validity of a policy or an insurer's obligations
under the policy is the basis for a contract claim against the insurer.
Id. Thus, even if MAIF otherwise is protected against suit by the
doctrine of sovereign immunity, in our view, the General Assembly
has waived any such immunity related to contract claims. IN §20-
505(a) (authorizing Executive Director of MAIF to settle,
compromise, and defend claims against the Fund); cf. SG §12-201
(waiving sovereign immunity in contract actions).
In the context of the insurance code, the purpose of the
administrative remedy of restitution is to avoid unjust enrichment.
Magan v. Medical Mut. Liab. Ins. Soc. of Maryland, 331 Md. 535,
545, 629 A.2d 626 (1997). Under the insurance code, the
Commissioner may order an insurer to pay direct financial damages
that result from an improper denial of coverage. Id. In our opinion,
the Commissioner has authority to award restitution against MAIF
for a violation of the Unfair Claim Settlement Practices Act, at least
to the extent that the right to restitution relates to a breach of the
contract between MAIF and its insured[13] and the amount of
restitution represents unjust enrichment of MAIF. An award of
restitution in this context could include the amount of an adverse
judgment or a reasonable settlement, and related expenses. See
Magan, 331 Md. at 545.
5. Fines
The statutory authorization for MAIF to settle claims does not
implicitly or explicitly extend to the payment of fines. Although it
may be possible to infer from other statutes[14] a legislative intent to
grant the Commissioner authority to impose fines against MAIF, the
issue is far from clear. There is no unambiguous indication of
legislative intent to subject MAIF to the fining authority of the
Commissioner. Accordingly, in our opinion, the Commissioner does
not have authority to fine the Fund.
III
Commissioner Review of MAIF Decision
to Cancel A Policy Prospectively
A. Placement of MAIF Coverage
MAIF's ability to cancel a policy is described in the statutes
and regulations governing the placement of MAIF policies. MAIF
policies are placed by "producers", in general, any insurance broker
or agent qualified by the Maryland Insurance Administration to sell
insurance in the State. IN §20-101(k); COMAR 14.07.02.01A.
Unlike other automobile insurers, MAIF does not have its own
agents and exercises only limited control over the producers who
place its policies.[15] To become eligible to place coverage with
MAIF, a producer need only submit to MAIF a copy of his or her
certificate issued by the Insurance Administration. See COMAR
14.07.02.01H. Producers are compensated by a commission
equaling no more than 10 per cent of the total premium. IN §20-
512(a).
MAIF is liable for coverage from the time a producer binds
coverage. IN §20-509(d). A producer may bind a MAIF policy if
the applicant submits a properly completed application for insurance
and pays the appropriate premium. IN §20-509; COMAR
14.07.02.01F. Producers may only bind the minimum coverage
required under the compulsory insurance law. COMAR
14.07.02.01E(3).
MAIF's regulations require a producer to verify the applicant's
eligibility for coverage on each new policy application. COMAR
14.07.02.03D. An applicant must satisfy four basic criteria to
qualify for coverage by the MAIF insured division: the applicant
must (1) possess a Maryland driver's license or own a vehicle
registered in Maryland; (2) not be indebted to MAIF for prior
policies; (3) have been rejected by two motor vehicle insurers or the
applicant's current policy must have been cancelled or nonrenewed;
and (4) be a Maryland resident.[16] IN §20-502(a). An applicant's
failure to meet those criteria warrants rejection of an application or
cancellation of an existing MAIF policy.
B. MAIF Authority to Reject or Cancel a Policy
The MAIF statute grants the Fund broad authority to reject
applications and to cancel policies, even after coverage has been
bound by a producer. The statute explicitly addresses two categories
of cancellation: (1) cancellation during a 60-day review period after
a producer has bound coverage; and (2) cancellation based on
subsequent events. The statute is less clear about a third category of
cancellations, those involving an applicant's lack of qualification
for a MAIF policy discovered after the 60-day review period.[17]
Within 60 days after coverage is bound by a producer, MAIF
may cancel coverage for three basic categories of reasons: (1) the
applicant is not eligible for MAIF insurance; (2) the applicant has
failed to pay the premium; (3) an event subsequent to the issuance
of the policy, such as loss of a driver's license, has rendered the
applicant ineligible for coverage. IN §§20-509(e), 20-516. If it
cancels a policy, MAIF must notify the applicant, the producer, and
the Motor Vehicle Administration ("MVA"). IN §20-509(f)(1).
MAIF remains liable to pay claims that arise before cancellation
becomes effective. See 58 Opinions of the Attorney General 427,
433 (1973). If the cancellation results from the applicant's failure
to pay the premium, MAIF must allow the applicant "a reasonable
opportunity to pay" the premium. IN §20-509(f)(3).
In addition, MAIF may cancel a policy "at any time" for
nonpayment of premiums or because the applicant's or
policyholder's driver's license has been suspended or revoked.[18] IN
§20-516(a)(2),(3). A policy may also be canceled if the temporary
registration of the covered vehicle has expired and the vehicle has
not been properly registered in Maryland. IN §20-516(d).
If a policy is canceled for any reason other than nonpayment of
a premium, the applicant may appeal the cancellation
administratively. IN §20-517(a). The policy remains in effect for
the duration of the appeal. IN §20-517(c)(2).
C. Statutory Procedures for Appeal of Cancellation Decision
A person whose application has been rejected or whose
insurance has been canceled by MAIF may appeal MAIF's decision
to a special, three-member review board.[19] See IN §20-517(a). The
board is comprised of two members of the Board of Trustees of the
Fund and the Insurance Commissioner or the Commissioner's
designee. The Executive Director of MAIF may not sit on a special
board. IN §20-517(b). The special board may hold a hearing and
affirm, reverse or modify the decision to cancel the policy. The
existing policy of the appellant remains in effect during the course
of the appeal. IN §20-517(c). An appeal must be filed within 10
days of receipt of notice of rejection or cancellation. This brief
period for filing an appeal is apparently designed to ensure that
MAIF does not remain liable for potential claims if the cancellation
is ultimately affirmed by the special board.
The procedure for review of a cancellation of an automobile
insurance policy by a private sector insurer is governed by a separate
section of the Insurance Article under which a policyholder may file
a "protest" with the Commissioner. IN §27-605. MAIF is explicitly
excluded from this procedure. See IN §27-605(a). Thus, in this
instance, the Insurance Article distinguishes MAIF from other
insurers with respect to the rules and regulations governing the
insurance industry generally. Cf. 58 Opinions of the Attorney
General 427, 432 (1973) (general rule on cancellation of insurance
due to innocent mistake by the applicant does not apply to MAIF as
the General Assembly has specifically identified why and when a
MAIF policy may be rejected or canceled).
D. Exclusivity of MAIF Appeal Process
You have asked whether the appeal process of IN §20-517 is
the exclusive means to review a MAIF decision to cancel a policy.
In other words, does the Commissioner have any independent
authority to review MAIF cancellation decisions?
In our opinion, the appeal process in the MAIF statute is the
exclusive means for review of a prospective cancellation decision.
The Insurance Article specifically excepts MAIF from the
cancellation provisions applicable to private insurers and includes
special provisions, including a specific review mechanism, for
MAIF cancellation decisions. The cancellation provisions of the
MAIF statute, at least as they apply to prospective cancellations,
are detailed and explicit. They clearly designate the special board as
the administrative authority to review a MAIF decision to cancel a
policy. Moreover, that procedure includes the Commissioner or the
Commissioner's designee as one of the members of the review
board. It would be inconsistent with this statutory scheme for the
Commissioner to exercise a veto over the board's decisions. Thus,
apart from the Commissioner's role as a member of a special board
under the MAIF statute, the Commissioner has no authority to
review a MAIF decision to cancel a policy prospectively.
IV
Commissioner Review of MAIF Decision
to Void a Policy Ab Initio
You have asked whether the Commissioner has authority to
reverse or modify a MAIF decision to void a policy ab initio. While
we do not believe that the Commissioner has authority to reverse a
MAIF decision to cancel a policy, the Commissioner does have
limited authority to review the retroactive cancellation of a policy
when MAIF denies a claim based on the voiding of the policy. To
explain this conclusion, we must first review the source of MAIF's
authority to cancel a policy retroactively.
The statutory source of MAIF's power to declare a policy void
ab initio, i.e., to rescind a policy or cancel it retroactively,[20] is not
absolutely clear. IN §20-502(e)(1) states simply that "[i]f a
prospective insured fails to qualify [for MAIF insurance], any policy
issued is void...." That section establishes no time limit, conditions,
or procedures for determining whether a policy is "void." Nor, on
its face, does it require or authorize any action by MAIF to render a
policy void.
However, another section of the MAIF statute that specifically
addresses MAIF's "cancellation" of a policy as a result of an
applicant's failure to satisfy eligibility criteria, among other things,
states that a cancellation by MAIF "may occur not later than 60
days" after coverage is bound by a producer and gives the applicant
a right to appeal that determination. IN §20-509(e)(2),(f). This
suggests that MAIF is prohibited from cancelling a policy on
eligibility grounds after the 60-day period. See Annotated Code of
Maryland, Article 1, §26 ("may not" and similar constructions to be
interpreted as a mandatory prohibition). Moreover, the appeal
provision referenced in IN §20-509 states that a policy remains in
effect for the duration of an appeal, thus suggesting that
cancellations subject to appeal operate prospectively. IN §§20-
516(f), 20-517(c)(2). This appears to be inconsistent with the notion
that a cancelled policy is "void."
In its administrative regulations concerning the binding of
coverage by its producers, MAIF has forged a middle ground.
Under those regulations, a policy issued to an ineligible applicant is
"void" if MAIF subsequently determines that the applicant made
"material misrepresentations as to the applicant's eligibility before
coverage was bound." COMAR 14.07.02.02C. However, the
regulations do not specify a time period or the procedures under
which such a determination is to be made or reviewed.
The remainder of this section of this opinion traces the
development of the law on MAIF's authority to cancel policies
retroactively on eligibility grounds and attempts to harmonize the
seemingly disparate statements of MAIF's power to declare a policy
void.
A. 1973 Attorney General Opinion
The ability of MAIF to cancel a policy retroactively was
recognized in an Attorney General opinion issued shortly after MAIF
was created. 58 Opinions of the Attorney General 427 (1973). In
that opinion, Attorney General Burch considered MAIF's liability
for claims with respect to policyholders who were later determined
to be ineligible for coverage. After reviewing the statute's directives
for binding MAIF coverage, then codified in Article 48A,
§243B(d),[21] the opinion concluded that MAIF could cancel a policy
on the ground that the applicant was ineligible for coverage, if the
lack of qualification was discovered within the 60-day period after
coverage became effective. Otherwise, "MAIF is on the risk for the
term of the policy." Id. at 434.[22] Incorrect information provided by
the applicant or the producer concerning the applicant's eligibility,
if provided in good faith, would not be a basis for cancelling the
policy unless the mistake were discovered within the 60-day review
period.
The one exception to this rule was that MAIF could void a
policy ab initio "where an insured has intentionally misrepresented
his eligibility to the agent or broker, or the insured has colluded with
the agent or broker in fraudulent misrepresentation of eligibility."
Id. at 430-31. Attorney General Burch concluded that, in such cases,
the policy was voidable at the option of MAIF and the Fund could
disclaim coverage for losses. This conclusion was drawn, not from
the MAIF statute, but from the common law right of rescission
available to insurers under Maryland case law. Id. Unlike the
general rule for private sector insurers, which permitted rescission
for both fraudulent and innocent, but material, misrepresentations,
the 1973 opinion concluded that MAIF's right to rescind was limited
to fraudulent or recklessly negligent misrepresentations.[23]
Attorney General Burch summarized MAIF's power to cancel
a policy for lack of eligibility:
[I]t is our opinion that the Legislature has
carefully balanced the competing interests
involved and has arrived in Section
243B(d)(3) with a reasonable procedure
designed to protect the interests of the driving
public, the applicant for insurance and the
private insurance companies by allowing
MAIF to cancel coverage for lack of
eligibility, but remaining liable (absent fraud
of the applicant) for any losses which may
occur during the period of time that coverage
was effective.
Id. at 435.
Subsequent to the 1973 Attorney General opinion, the
Legislature has amended the MAIF statute, MAIF has adopted an
administrative interpretation of its authority to rescind a policy, and
the Court of Appeals has recognized that the common law power of
a private insurer to rescind a policy has been abrogated. We must
consider whether these intervening events signify an adjustment of
the "careful balance" that Attorney General Burch outlined in the
1973 opinion.
B. 1983 Amendment of MAIF Statute
1. Reference to "Void" Policies
In 1983 the Legislature amended the MAIF statute to include
specific reference to policies "void ab initio" as a result of the
insured's lack of eligibility. See Chapter 617, Laws of Maryland
1983, now codified at IN §20-502(e)(1). That legislation was the
product of a legislative task force charged with devising solutions to
the dramatic increase in the number of uninsured motorists in
Maryland during the decade following the passage of the compulsory
insurance law. See id., Preamble; Final Report of the Insurance
Task Force of the House Economic Matters Committee (January
1983) ("Task Force Report") at pp. 5-9; Senate Economic Affairs
Committee Report (House Bill 633) at p. 4 ("The purpose of this bill
is to promote greater enforcement of the laws requiring that ... any
vehicle registered in Maryland be insured.").
To ensure compliance with the compulsory insurance law, the
bill amended portions of the Transportation Article to tighten
MVA's enforcement of the law by adding documentation
requirements, increasing fines, and imposing points for certain
violations. The changes to the MAIF statute derived from the Task
Force's observation that many individuals would obtain insurance at
the time that their vehicle tags were renewed, but cancel the policy
shortly thereafter. Task Force Report at p. 6. The bill made it less
attractive for an insured to cancel a MAIF policy by providing that
a producer's commission would be "fully earned" when "a valid
contract of insurance" was made with the Fund and the premium was
paid. This meant that the producer's commission would be deducted
from any amount refunded if a MAIF policy was cancelled,
presumably reducing the incentive for an individual to drop
insurance coverage. (Prior to this amendment, an insured who
canceled a MAIF policy would receive a refund including part of the
producer's commission). However, under the amendment, the
producer would not earn a commission if the applicant did not pay
the premium or was ineligible for a MAIF policy, in which cases
the legislation termed the policy "void ab initio."[24] This presumably
reduced any incentive for a producer to obtain commissions by
ignoring eligibility requirements when placing policies. The
Legislature believed that it was subjecting MAIF policyholders to
the same conditions as policyholders of private insurers.[25]
This provision was recodified as IN §20-502(e) in 1996 and
subsequently amended in 1998 to permit MAIF to charge a
processing fee when it canceled a policy because the applicant failed
to satisfy the Maryland residency condition. In addition, the
Legislature directed the Fund to refer to the Insurance Fraud
Division of Maryland Insurance Administration, for investigation
and possible prosecution, any person whose policy was cancelled for
lack of eligibility. Chapter 400, Laws of Maryland 1998, codified at
IN §20-502(e)(2).[26]
When it added the provision declaring policies issued to
ineligible applicants "void ab initio," the Legislature left intact the
existing 60-day review period for cancellation of MAIF policies for,
among other things, lack of eligibility. Former Article 48A,
§243B(d)(4), now codified at IN §20-509(e)(2).
2. Construction of IN §20-502(e)(1)
One might read the word "void" in IN §20-502(e)(1) to declare
invalid any MAIF policy issued to an ineligible person or to confer
unlimited authority on MAIF to rescind a policy issued to an
ineligible person at any time. However, in our opinion, this section
does not confer such authority for several reasons.
The terms "void" and "void ab initio," when used with respect
to a contract, generally signify that the contract is "of no legal
effect" or "null from the beginning" in contrast with a "voidable"
contract which is "valid until annulled." Black's Law Dictionary (7th
ed. 1999) at p. 1568 ("void," "voidable"). However, it is often the
case that the term "void" is used in statutes to mean "voidable." Id.
The context in which the term is used determines it meaning in a
particular statute. See Romm v. Flax, 340 Md. 690, 668 A.2d 1
(1995) (construing term "void" in section of Real Property Article
concerning real estate sales contract to mean voidable at the option
of one of the parties to a contract); 79 Opinions of the Attorney
General 402, 408 (1994). Thus, the use of the term "void" by itself
does not mean that the Legislature intended to invalidate all policies
issued to ineligible applicants.
In this instance, IN §20-502(e)(1) must be read consistently
with IN §20-509(e), the portion of the statute that specifies the
conditions for cancellation of a policy by MAIF. IN §20-509(e)
permits MAIF to cancel coverage within 60 days if, among other
things, the applicant is not qualified for MAIF insurance. That 60-
day limitation would be meaningless if a policy issued to an
ineligible applicant were necessarily invalid or if MAIF were able to
cancel a policy retroactively under IN §20-502(e)(1) at any time.
Moreover, the language of IN §20-502(e)(1) itself indicates
that it generally pertains to MAIF's evaluation of a policy that a
producer has bound and whether the producer is entitled to a
commission: "If a prospective insured fails to qualify ... any policy
issued is void and a commission may not be paid by the Fund to a
producer." IN §20-502(e)(1). See also Janquitto, Maryland Motor
Vehicle Insurance (2d ed.) at p. 831 (construing IN §20-502(e)(1) to
mean that MAIF can, within 60 days, declare a policy void for lack
of qualification).
In our opinion, IN §20-502(e) and IN §20-509(e) can be
harmonized in the following manner. In creating the 60-day
deadline in IN §20-509(e)(2) for MAIF to cancel a policy bound by
a producer, the Legislature clearly contemplated that some ineligible
persons would retain MAIF insurance despite a lack of qualification,
if their lack of qualification was not discovered within the 60-day
review period. Presumably, the Legislature accepted this as the price
for certainty in the binding of MAIF coverage. However, we think
it unlikely that, in providing a limited period for MAIF to review the
eligibility of an applicant, the Legislature intended to benefit an
applicant who deliberately attempted to thwart that review. Indeed,
the mandate in IN §20-502(e) that ineligible persons be referred to
the Insurance Fraud Division for investigation and prosecution
suggests that the Legislature anticipated that the voiding of policies
would be related to deliberate misrepresentation.
Thus, in our opinion, MAIF's authority to rescind a policy
because the applicant is not eligible for coverage by the Fund is
ordinarily limited to the 60-day review period after coverage is
initially bound. However, MAIF still has authority to void a policy
retroactively without regard to the 60-day period if the insured has
intentionally misrepresented eligibility for MAIF coverage and thus
defeated MAIF's ability to make an expeditious determination about
eligibility.
C. MAIF Administrative Interpretation
In 1988, MAIF amended its binding rules for producers to
provide that a policy would be void as a result of material
misrepresentation by an applicant concerning eligibility for MAIF
coverage. That regulation read as follows:
If MAIF subsequently determines that an
applicant has made material
misrepresentations as to the applicant's
eligibility before coverage is bound, there is
no coverage bound and any policy or
endorsement issued in reliance on the
incorrect eligibility information is void.
COMAR 14.07.02.02C (effective June 27, 1988), published at 14:26
Md. Reg. 2804, 2805 (December 18, 1987). With minor changes,
that regulation remains in effect today.[27] This administrative
construction of the statute, embodied in a formal rule for more than
a decade, by the agency charged with administering the eligibility
criteria, would likely receive substantial deference from the courts.
Marriott Employees Federal Credit Union v. Motor Vehicle
Administration, 346 Md. 437, 445, 697 A.2d 455 (1997); Magan v.
Medical Mut. Liab. Ins. Co., 331 Md. 535, 546, 629 A.2d 626
(1993).
Under the regulation, ineligibility of the applicant alone does
not result in the voiding of a policy; rather, it is conditioned upon a
finding by MAIF that the applicant made a material
misrepresentation as to his or her eligibility. Thus, consistent with
our interpretation of IN §20-502(e)(1), MAIF's administrative
interpretation apparently construes an applicant's lack of eligibility
to render a policy "voidable" rather than "void." Moreover, MAIF
has not construed IN §20-502(e) to broaden its authority to void
policies beyond instances in which the applicant has misrepresented
his or her eligibility before the binding of coverage.
The regulation does not state whether MAIF's determination
must be made within the statutory 60-day period after the producer
binds coverage.[28] As indicated above, to the extent that the
regulation permits MAIF to cancel a policy retroactively after the
60-day review period, we believe it should be limited to instances of
deliberate or recklessly negligent, rather than innocent,
misrepresentation.
D. Abrogation of Common Law Right of Rescission of Private
Insurers
The 1973 Attorney General opinion concerning MAIF's
authority to void a policy ab initio was based in part on the common
law right of an insurer to rescind a policy based on material
misrepresentation by the insured. Subsequently, an opinion of this
Office and a decision of the Court of Appeals both concluded that
the compulsory insurance law abrogated, at least in part, a private
insurer's right of rescind based on material misrepresentation. We
must consider what, if any, effect the abrogation of a private
insurer's common law right of rescission has on MAIF's authority.
1. 1986 Attorney General Opinion
In a 1986 opinion, this Office concluded that the enactment of
the compulsory insurance law modified the common law right of an
insurer to void a policy ab initio based on material misrepresentation
by the insured. 71 Opinions of the Attorney General 173 (1986). In
that opinion, Attorney General Sachs concluded that an insurer who
believed that an insured had made material misrepresentations in an
application could either pursue prospective cancellation of the policy
under the procedures set forth in the insurance code or could seek a
judicial declaration that the policy was void ab initio. However, the
insurer could not unilaterally declare the policy void ab initio.
The opinion was based on the design of the compulsory
insurance law, notably that "[c]ontinuous insurance coverage is
essential to the effectiveness of a law mandating automobile
insurance in fixed amounts." Id. at 176. To allow an insurer to
terminate coverage "merely by declaring that the insured made a
material misrepresentation on the insurance application ... would
leave a gaping hole in the statutory scheme." Id. at 179. In
discussing the effect of rescission of a policy, the opinion did not
distinguish between an innocent third party's claim and a claim by
the insured for the insured's own injuries or damages. Nor did the
opinion make any specific reference to cancellation of a MAIF
policy.
2. Van Horn Decision
In Van Horn v. Atlantic Mutual Insurance Company, 334 Md.
669, 641 A.2d 195 (1994), the Court of Appeals concluded that the
common law right of an insurer to rescind, or void ab initio, the
insurance contract based on material misrepresentation had been
abrogated completely with respect to parties not involved in the
misrepresentation. Specifically, the Court concluded that an insurer
could not declare a policy void ab initio in defense of claims asserted
by innocent third parties injured by the insured. Like the 1986
Attorney General's opinion, the Court based its conclusion on the
policies underlying the 1972 legislation that adopted the compulsory
insurance law, created MAIF, and established detailed procedures
for cancellation of policies. Chapter 73, Laws of Maryland 1972.
The Court stated:
The provisions for compulsory insurance on
every Maryland automobile are made feasible
by the creation of MAIF as an insurer of last
resort. If a private insurer terminates a policy,
MAIF is available to issue a new policy. If an
insurer's termination of a policy is contested,
[IN §27-605(d)(4)(i)] requires that the policy
stay in effect until the contest is resolved. The
mandatory uninsured motorist coverage helps
close a gap in liability coverage caused by
irresponsible tort feasors who violate the
compulsory insurance law. The PIP
provisions are designed to provide some
coverage by insurance policies regardless of
fault. These statutory provisions complement
each other in achieving the legislative purpose
that there be continuous coverage for injuries
incurred in motor vehicle accidents.
Recognition of a common law contract right to
void a motor vehicle insurance policy ab initio
is utterly inconsistent with this legislative
purpose.
334 Md. at 684.
On the facts of Van Horn itself, the Court noted that a
retroactive cancellation of the policy would have the effect of
leaving an automobile uninsured for a two-year period with no
means available to the insured to replace that insurance at the time
of cancellation. Id. at 684-85. The Court reasoned that this result
would be at odds with the statutory policy of continuous insurance
coverage:
A retroactive cancellation of a motor
vehicle insurance policy is also inconsistent
with the policy termination procedures and
requirements set forth in [IN §§27-501 and
27-605], which permit only prospective
cancellation, require that the insurance policy
stay in force if the cancellation is protested,
and contemplate the availability of an
insurance policy from MAIF if the
cancellation goes into effect, thereby
guaranteeing continuous motor vehicle
insurance coverage.
Id. at 685.
The Van Horn decision addressed retroactive cancellation only
with respect to a claim brought by an innocent third party, i.e., an
individual injured by the insured who had made a material
misrepresentation to the insurer. The decision explicitly left open
the question of whether an insurer may obtain a judicial declaration
that the policy was void ab initio as to an insured's claims. Id. at
693 n.8.[29] As MAIF was not involved in the case, the Court did not
address whether its holding would apply to the Fund.
3. Application to MAIF
Under the 1986 Attorney General opinion and the Van Horn
decision, any remaining authority of a private insurer to have a
policy declared void ab initio based on intentional misrepresentation
by the insured is limited. The insurer may not disclaim coverage in
response to a claim by an innocent third party. Even if the insurer's
right of rescission survives Van Horn as to claims by the insured
who made the misrepresentation, under the 1986 Attorney General
opinion the insurer must go to court to rescind the policy.
Neither Van Horn nor the 1986 Attorney General opinion had
occasion to discuss MAIF's authority to void a policy. At least one
commentator has suggested that the Van Horn decision limits
MAIF's ability to void a policy ab initio. See Janquitto, Maryland
Motor Vehicle Insurance (2d ed.) at p. 814 n.111. However,
rescission of a MAIF policy as a result of misrepresentation by the
insured concerning eligibility is distinguishable from rescission by
other automobile liability insurers.
First, unlike a private insurer's underwriting criteria, MAIF's
eligibility criteria do not address the degree of risk MAIF is willing
to accept. Rather, they represent the General Assembly's
determination of the class of drivers and vehicles for which the State
has created an insurer of last resort. Moreover, even if the term
"void" in IN §20-502(e)(1) is not construed to render invalid all
MAIF policies issued to ineligible drivers, at the very least it
references a category of insurance contracts voidable by MAIF.
Second, the rationale of both Van Horn and the 1986 Attorney
General opinion does not apply as readily to an insurer of last resort
as it does to a private automobile liability insurer. Both the 1986
opinion and the Van Horn decision found legislative intent to
abrogate a private insurer's right of rescission based on the detailed
cancellation procedures of IN §27-605 and the public policy
objective of the compulsory insurance law that there be continuous
insurance coverage. Van Horn, 334 Md. at 684; 71 Opinions of the
Attorney General at 176.
While the MAIF statute also contains cancellation procedures,
abrogation of MAIF's right of rescission is not essential to achieve
universal and continuous insurance coverage for Maryland drivers.
If a private insurer cancels an individual's policy, the individual has
an opportunity to contest the cancellation, to obtain a policy from
another insurer, or, as a last resort, to obtain a policy with MAIF.[30]
As a result, innocent third party claimants have the benefit of
continuous insurance coverage. Rescission by a private insurer
would interfere with this design for continuous coverage.
By contrast, an individual ineligible for MAIF insurance,
particularly on the basis of non-residency, presumably would be
ineligible for any automobile liability insurance under the Maryland
scheme. Abrogation of MAIF's right of rescission would not serve
the purpose of ensuring that the applicant has an opportunity to
obtain substitute insurance under the Maryland scheme for it is likely
that the applicant cannot do so. Rescission of a MAIF policy,
particularly as to an individual who has misrepresented his or her
eligibility, thus does not leave the "gaping hole" in the compulsory
insurance law that the 1986 Attorney General opinion perceived
would exist if a private insurer were allowed to rescind.
Thus, the compulsory insurance law does not necessarily
demonstrate a legislative intent to abrogate the rescission authority
of the insurer of last resort. Indeed, the ability to void a MAIF
insurance contract is preserved in the MAIF statute, a key part of
the compulsory insurance law in which both the Van Horn decision
and the 1986 Attorney General opinion found abrogation of a private
insurer's right to rescind. Until the Court of Appeals speaks
definitively on this issue, we believe that MAIF's right to rescind
policies on the basis of deliberate misrepresentation as to eligibility
survives Van Horn.
E. Commissioner Review of Denial of Claim Against Policy
Declared Void by MAIF
As indicated in Part III of this opinion, the Commissioner has
no independent authority to review the Fund's application of the
statutory eligibility criteria for MAIF coverage when the Fund
rescinds a policy within the 60-day review period. In our opinion,
however, if MAIF denies a claim by cancelling a policy retroactively
after the 60-day review period on the basis of deliberate
misrepresentation as to eligibility, the Commissioner has limited
authority to review the finding of deliberate misrepresentation.
Under the MAIF statute, MAIF may rescind a policy if, within
the 60-day period, it determines that the applicant is ineligible.
Apart from the Commissioner's participation in the special appeal
board under the MAIF statute, the Commissioner has no independent
authority to review that decision. It is thus apparent that the
Legislature has assigned to MAIF and its special appeal board the
task of interpreting the eligibility criteria for MAIF coverage without
additional oversight by the Commissioner.
However, the legislative delegation to the Fund of authority to
apply the eligibility criteria for MAIF coverage does not imply that
the Legislature meant for MAIF to be unregulated in its
administration of claims that are denied because a policy has been
declared void. Under the statutory scheme, MAIF's rejection of a
policy bound by a producer does not necessarily mean that claims
against the policy arising before cancellation are to be denied.
Indeed, the statute governing the MAIF appeal process provides that
coverage ordinarily remains in effect during an appeal to MAIF's
special board. IN §20-517(c)(2). Thus, consistent with the design
of the compulsory insurance law, the MAIF statute contemplates
continuous insurance coverage for the benefit of third party
claimants.
MAIF's denial of a claim beyond the 60-day review period on
the ground that the policy is void ab initio does not depend upon the
application of the eligibility criteria alone. Rather, it also depends
on a finding that the insured deliberately misrepresented facts
material to eligibility. This is a distinct issue from whether the
insured was in fact eligible for MAIF coverage at the time coverage
was bound. Nothing in the MAIF statute assigns to MAIF exclusive
authority to determine the circumstances under which a policy can
be rescinded beyond the 60-day review period. In our opinion, the
Commissioner may review whether a MAIF finding of a deliberate
misrepresentation as to eligibility is an "arbitrary and capricious"
reason for failing to settle a claim. See IN §27-303(2).
In other words, MAIF could find, and the special board could
affirm, that an insured was not in fact eligible for MAIF coverage.
The Commissioner has no authority to review or modify that portion
of the MAIF decision. However, to resolve a complaint under the
Unfair Claim Settlement Practices Act, the Commissioner may
review any additional determination by MAIF of deliberate
misrepresentation by the insured that is the basis for MAIF's
retroactive cancellation and refusal to settle the claim.[31] In
particular, the Commissioner has authority to determine whether
MAIF's decision to rescind the policy after the 60-day review
period constituted an arbitrary and capricious refusal to pay the
claim.
We realize that this interpretation creates some potential for
seemingly disparate administrative rulings. For example, the
Commissioner may be confronted with a complaint by a third party
claimant against a policy for which the MAIF special board has
affirmed a retroactive cancellation on appeal by the insured.[32] As
outlined above, we do not believe that the Commissioner is bound
by a determination by MAIF that the insured deliberately
misrepresented eligibility and that the cancellation operates
retroactively so as to deny the claim. However, the Commissioner
may appropriately consider the process and the record developed by
MAIF in determining whether MAIF's finding of deliberate
misrepresentation was an arbitrary and capricious reason for denying
the third party claim. Moreover, the Commissioner and MAIF might
profitably enter into protocols for the coordinated review of
complaints relating to claims against policies that MAIF has
declared void.
Of course, to the extent that MAIF obtained court approval for
retroactive cancellation of a policy, in a procedure analogous to
that for private insurers described in the 1986 Attorney General
opinion, the Commissioner would have no authority to review or
modify that decision. A judicial decision approving retroactive
rescission would not be subject to review or modification by the
Commissioner.
V
Other Violations By MAIF and Its Producers
Finally, you ask whether the penalties set forth in IN §4-113(d)
are available against MAIF "if the Commissioner determines that
MAIF or one of its agents or producers has violated another
provision of the Insurance Article, such as those relating to rating or
underwriting."
A. Other Violations by MAIF
IN §4-113(d) authorizes the Commissioner to impose a
monetary penalty against, or to require restitution by, a holder of a
certificate of authority who has committed a violation that could
warrant suspension or revocation of the certificate of authority. As
explained in Part II.B of this opinion, the Commissioner has no
authority to impose a fine on MAIF absent a waiver of sovereign
immunity by the General Assembly. Because MAIF does not
operate under a certificate of authority, the Commissioner's powers
under IN §4-113 ordinarily do not extend to MAIF.
However, as indicated in Part II.B.4 of this opinion, the
Commissioner may require MAIF to make restitution, if MAIF
violates a provision of the Insurance Article applicable to MAIF and
if the Commissioner has jurisdiction over the violation. We note that
some provisions of the Insurance Article, such as IN §11-323,
clearly apply to MAIF; other provisions, such as the Unfair Claim
Settlement Practices Act, implicitly apply to MAIF; and yet other
provisions, such as IN §§4-302 et seq., clearly do not apply to
MAIF. In a particular context, the Commissioner may have
authority to order MAIF to make restitution under other provisions
of the Insurance Article, e.g., IN §27-305.
With respect to rating violations, while MAIF is generally
excluded from the rating provisions of the Insurance Article, its rates
are subject to approval by the Commissioner. IN §11-303(a)(7).
Among the unfair trade practices set forth in the insurance code is
the collection of premiums that differ from rates filed with and
approved by the Commissioner. IN §27-216(b). The statute
defining this unfair practice includes a specific exception allowing
the recovery of actual expenses incurred by a producer in placing
coverage with MAIF. IN §27-216(b)(2). That exception would be
unnecessary if the statute did not encompass the placement of MAIF
policies. If MAIF were to violate this section, the Commissioner
could issue a cease and desist order under IN §27-103.
We have not canvassed the universe of all possible violations
of the insurance law by MAIF. However, as a matter of general
guidance, to determine whether the Commissioner has authority over
MAIF as to a particular alleged violation we would apply the
analysis set out in this opinion. First, the general rule is that MAIF
is to be regulated as any other insurer. Next, the specific provision
must be reviewed in the context of the entire Insurance Article and
with particular reference to the MAIF statute to determine whether
an explicit or implicit exception to the general rule applies. Finally,
the remedies available under the statute must be analyzed to
determine which ones apply to MAIF.
B. Other Violations by Producers
Because IN §4-113(d) pertains to insurers, it does not authorize
the Commissioner to take action against a MAIF producer.
However, because a producer is by definition a qualified broker or
agent, IN §20-101(k), the Commissioner has authority elsewhere in
the insurance code to discipline a MAIF producer. For example, the
Commissioner may deny, suspend, or revoke a certificate of
qualification for, among other things, violations of the Insurance
Article or other laws relating to insurance. IN §10-126(a).
Moreover, as noted above, the portion of the unfair trade practices
statute relating to collection of premiums applies to MAIF policies;
a producer who collects incorrect premiums is subject to discipline
by the Commissioner under that statute.
We note that the MAIF statute and regulations establish a
detailed procedure under which MAIF may terminate a producer's
authority to bind coverage, if the producer violates MAIF's binding
regulations or fails to pay money owed to MAIF. IN §20-513, 20-
514; COMAR 14.07.03. The Commissioner plays no role in those
determinations. However, conduct that would support disciplinary
action by MAIF against a producer may, in appropriate
circumstances, also warrant action by the Commissioner.
VI
Conclusion
As a general rule, MAIF is subject to the same regulatory
scheme as the private insurance industry except where the Insurance
Article or another provision of law explicitly or implicitly provides
otherwise. Under the Unfair Claim Settlement Practices Act, the
Commissioner may order MAIF to discontinue an unfair practice,
and to make restitution to a claimant based on a violation of the
Insurance Article that relates to a failure by MAIF to abide by its
contractual obligations in an insurance policy. Other remedies in the
Act are not available against MAIF, e.g., the Commissioner may
not revoke or suspend MAIF's authority to sell insurance.
As a member of a special appeal board under the MAIF statute,
the Commissioner participates in the review of MAIF decisions to
cancel policies, but the Commissioner has no independent authority
to review such decisions. Nor does the Commissioner ordinarily
have authority to review a MAIF decision to void a policy ab initio
on the ground that the insured misrepresented his or her eligibility
for MAIF insurance. However, when MAIF rescinds a policy
retroactively after a claim has been filed, the Commissioner has
authority under the Unfair Claim Settlement Practices Act to review
MAIF's finding of deliberate misrepresentation, unless MAIF has
obtained court approval for the retroactive cancellation of the policy.
Finally, the Commissioner may impose administrative
sanctions on MAIF or its producers for other violations of the State
insurance law if, under the principles outlined in this opinion, the
relevant provision of the Insurance Article explicitly or implicitly
grants the Commissioner administrative authority over MAIF or its
producers.
J. Joseph Curran, Jr.
Attorney General
Kathleen Hoke Dachille
Special Assistant
to the Attorney General
Robert N. McDonald
Chief Counsel
Opinions and Advice
Editor's Note:
The Court of Special Appeals subsequently discussed this
opinion and MAIF's authority to declare a policy void ab initio in
MAIF v. Lumbermen's Mutual Casualty Co., 148 Md. App. 690, 814
A.2d 52 (2002).
[1] See, e.g., 62 Opinions of the Attorney General 578 (1977) (MAIF
subject to Public Information Act); 61 Opinions of the Attorney General
567 (1976) (members of MAIF Board of Trustees are "public officials").
[2] It is also notable that the General Assembly has given the
Commissioner discretion to exempt MAIF from certain administrative and
procedural requirements generally applicable to State agencies. See
Annotated Code of Maryland, State Government Article, §10-120(b)
(authorizing exemption from certain provisions relating to promulgation
of regulations); §10-302(b) (authorizing exemption from provisions
relating to declaratory rulings).
[3] The MAIF statute also creates the Industry Automobile Insurance
Association, and defines it to include all automobile liability insurers, but
then specifically excepts MAIF from the Association. See IN §§20-
101(c); 20-402(a). The insurance code formerly used the term "insurer"
within the provisions relating to the Association; the term "Association
member" was substituted in 1996 to clarify the application of Association
rules and to "avoid confusion with the defined term 'insurer' that appears
in [IN] §1-101." Revisor's Note to IN §20-101(c). Implicit in this change
is an understanding that the term "insurer" ordinarily includes MAIF.
[4] Although there are no reported judicial decisions on whether
MAIF is subject to regulation by the Commissioner, the courts appear to
consider MAIF, in its capacity as an insurer, like other insurers. The
Court of Appeals described an action against MAIF as "an action against
a liability insurer based upon the insurer's allegedly erroneous denial of
coverage." Mesmer v. MAIF, 353 Md. 241, 246, 725 A.2d 1053 (1996).
Other than a passing mention of sovereign immunity, the analysis of this
claim was no different than if a private insurer had been the defendant.
[5] The Act does not create a private right of action nor does it
prevent any consumer from seeking redress in the courts based on conduct
that is the subject of a complaint under the Act. IN §27-301(b).
[6] Of the amendments to the Act since 1986, none has addressed
MAIF directly or indirectly. See Chapter 5, §1, Laws of Maryland 1993;
Chapter 593, Laws of Maryland 1992; Chapter 21, §3, Laws of Maryland
1991.
[7] MAIF is, and was at the time the Legislature enacted the Unfair
Claim Settlement Practices Act, one of the larger automobile liability
insurers in Maryland. MAIF currently insures approximately 3% of
Maryland automobiles and accounts for approximately 5% of the
automobile liability insurance written in the State. It ranks among the top
ten automobile liability insurers in the State.
[8] For example, if necessary, the Commissioner may obtain from
MAIF information concerning its settlement of claims by administrative
subpoena under IN §2-203, by request under the Public Information Act,
Annotated Code of Maryland, State Government Article, §10-611 et seq,
or by voluntary agreement.
[9] Section 27-305 provides:
(a) The Commissioner may impose a penalty
not exceeding $2,500 for each violation of §27-
303 of this subtitle or a regulation adopted under
§27-303 of this subtitle.
(b) The penalty for a violation of §27-304 of
this subtitle is as provided in §§1-301, 4-113, 4-
114, and 27-103 of this article.
(c)(1) On finding a violation of this subtitle,
the Commissioner may require an insurer or
nonprofit health service plan to make restitution to
each claimant who has suffered actual economic
damage because of the violation.
(2) Restitution may not exceed the amount
of actual economic damage sustained, subject to
the limits of any applicable policy.
[10] A willful violation of IN §27-304 is also punishable as a
criminal misdemeanor. IN §§1-301, 27-305(b). Of course, this remedy
is outside the Commissioner's authority.
[11] In particular, the Commissioner must find that it appears:
(1) the insurer is:
(i) conducting its business and affairs
in a manner that threatens to make it insolvent or
that is hazardous to its policyholders, creditors, or
the general public; or
(ii) engaged in an act, practice, or
transaction that constitutes grounds making the
insurer subject to conservation or liquidation
proceedings; and
(2) irreparable loss and injury to the
property and business of the insurer or the general
public has occurred or may occur unless the
Commissioner acts immediately.
IN §4-114(a).
[12] For purposes of this opinion we need not discuss whether MAIF
is entitled to sovereign immunity with respect to independent civil causes
of action. Therefore, we do not engage in the multi-faceted analysis of
whether MAIF is a state agency entitled to sovereign immunity. See, e.g.,
A.S. Abell Publishing Co. v. Mezzanote, 297 Md. 26, 35, 464 A.2d 1068
(1983); Central Collection Unit v. DLD Associates Ltd. Partnership, 112
Md. App. 502, 685 A.2d 873 (1996).
[13] The Court of Appeals has not yet ruled on MAIF's assertion of
sovereign immunity as to tort-based claims. See Mesmer v. MAIF, 353
Md. 241, 725 A.2d 1053 (1996) (noting, but not deciding, question
whether MAIF enjoys sovereign immunity with respect to tort claims for
bad faith failure to settle a claim). However, it seems likely that many, if
not most, complaints to the Commissioner seeking restitution from MAIF
under the Unfair Claim Settlement Practices Act would be based, at least
in part, on a theory that MAIF breached a contractual obligation.
[14] A waiver of sovereign immunity with respect to administrative
fines might be inferred from IN §11-323, which requires each insurer,
including MAIF, to file data concerning the geographic distribution of its
policies in the State and authorizes penalties if the insurer fails to make
the required filing:
Failure by the insurer or [MAIF] to submit
the data required under this section on a timely
basis is grounds for the imposition of the penalties
provided in §§4-113 and 4-114 of this article.
IN §11-323(d). The specific reference to MAIF in IN §11-323(d) would
be meaningless unless the monetary sanctions of IN §4-113(d) are
available against MAIF. As explained above, the other administrative
sanctions set forth in IN §§4-113 and 4-114 cannot be applied against
MAIF. See Parts II.B.2, 3 of this opinion. Thus, the only remaining
penalties available against MAIF for a violation of IN §11-323 are the
monetary penalties set forth in IN §4-113(d). Accordingly, one might
infer that the Insurance Article permits the Commissioner to impose
monetary penalties and to issue orders of restitution against MAIF when
MAIF fails to comply with IN §11-323.
On the other hand, the Commissioner's authority to fine MAIF
under §11-323 is not without ambiguity. Although IN §11-323, since its
enactment in 1995, has required MAIF to provide the information
concerning the geographic distribution of its policies, MAIF was not
specifically named in the penalty section of the statute as originally
enacted. See Chapter 352, §4, Laws of Maryland 1995, then codified as
Article 48A, §245. MAIF was only added to that subsection of IN §11-
323 when the subsection was redrafted "without substantive change" as
part of the 1997 revision of the insurance code. The Revisor's Note
explains that MAIF was explicitly added to the subsection "for
consistency." See Chapter 35, Laws of Maryland 1997, Revisor's Note to
IN §11-323. There is no indication in the legislative history that the
General Assembly explicitly or by necessary implication intended a waiver
of sovereign immunity when it passed the 1995 legislation. Moreover, a
change in a statute as part of code revision is not deemed to modify the
law unless the Legislature's intention to do so is "unmistakable." Blevins
v. Baltimore County, 352 Md. 620, 642, 724 A.2d 22 (1999). Therefore,
the 1997 code revision of IN §11-323 presumably did not effect a waiver
of sovereign immunity. In our opinion, the current language of IN §11-
323 cannot be read to authorize the Commissioner to impose a fine against
MAIF under the Unfair Claim Settlement Practices Act, an unrelated
statute enacted more than a decade earlier.
[15] Indeed, a producer may not represent himself or herself as an
"agent" of MAIF. COMAR 14.07.02.01E.
[16] MAIF coverage is not available if the applicant leases the
covered vehicle to a non-resident or garages it principally outside the
State. IN §20-502(c).
[17] See Part IV of this opinion.
[18] A license suspension is not a basis for rejection if the suspension
resulted from a first offense under TR §16-205.1. See IN §20-516(a)(3)(i).
[19] This appeal process is not available if the policy was canceled
for nonpayment of premiums. IN §20-517(a).
[20] The terms "void" and "cancel" appear in the MAIF statute, but
are not specifically defined. The term "rescind" is also used in the case
law and commentary to refer to a retroactive cancellation of an insurance
contract. The Court of Appeals has noted the use in Maryland case law of
several terms, including "cancel," to refer to a retroactive termination of
a policy. Van Horn v. Atlantic Mutual Insurance Company, 334 Md. 669,
686 n.6, 641 A.2d 195 (1994). The imprecise use of these terms has
generated some confusion in the context of insurance contracts. See
Williams, Insurance Law – Protecting the Public under Maryland's
Compulsory Motor Vehicle Insurance Scheme: The Abrogation of an
Insurer's Common-Law Right to Void an Insurance Contract Ab Initio for
a Material Misrepresentation in the Policy Application, 25 U. Balt. L.
Rev. 289, 291-92 (1996). In this opinion, we use the terms "cancel
retroactively" and "rescind" as synonyms for "void ab initio."
[21] Those provisions are now codified in IN §20-509.
[22] The 1973 opinion also concluded that MAIF would be liable for
any claims that arose in the interim between the time coverage was bound
and the cancellation. 58 Opinions of the Attorney General at 432.
However, a 1983 amendment, which used the term "void" in reference to
a policy issued to an ineligible applicant, raised the possibility that such
a cancellation operates retrospectively and that MAIF would not be liable
for such claims regardless of the fault of the applicant. Janquitto,
Maryland Motor Vehicle Insurance (2d ed.) at pp. 839-40. See Part IV.B.
of this opinion.
[23] MAIF's early rules for binding coverage reflected the advice
given in the 1973 opinion. See MAIF Rules 2.25, 2.26, published at 4:8
Md. Reg. 636 (April 13, 1977). Under those rules, MAIF reserved the
right to disclaim liability as to any claims on a policy for which "the
applicant is grossly negligent, or practices fraud with regard to
eligibility." Rule 2.25. In any other case, if MAIF did not cancel within
the 60-day period after coverage was bound, then "coverage shall not be
affected by lack of eligibility." Rule 2.26.
[24] To accomplish this, the bill added language to then Article 48A,
§243B(c):
A commission paid by the Fund shall be fully
earned. A commission shall be deemed "fully
earned" when a valid contract of insurance is
made with the Fund, at issuance of an initial
policy or endorsement thereof, as and when the
correct and correctly rated premium is fully paid
to the Fund, except when:
(1) a prospective insured fails to qualify
under subsection (a) of this section, in which
event any policy issued shall be void ab initio, or
(2) a prospective insured's initial payment to
the Fund, or broker, agent, or premium finance
company, is not honored, in which event any
policy or endorsement issued in reliance on such
payment shall be void ab initio.
During code revision the term "void" was substituted for "void ab initio"
without the intention to make any substantive change. See Chapter 11,
Laws of Maryland 1996, Revisor's Note at pp. 556-57.
[25] The Task Force Report summarized this part of the bill as
follows:
MAIF agents to receive full earned commissions.
At present time individual gets money back
(including agent's commission) when he cancels
in mid-term of policy and drives uninsured. Now
will get back unearned premium less agent's
commission. [sic] Net effect is to treat MAIF
policyholder the same as policyholder with private
carrier.
Task Force Report at p.7. Several years later, the General Assembly
reversed course on the payment of producers' commissions and amended
the section to provide that "[t]he Fund may not pay any commission on a
fully earned basis." Chapter 4, Laws of Maryland 1989. That legislation
retained the proviso that producers would not earn a commission for
policies issued to individuals who did not qualify for coverage. Again, the
legislative file indicates that the purpose of the bill was to bring MAIF
practices regarding payment of commissions in line with industry practice.
See House Floor Report for House Bill 375 (1989).
[26] Material submitted to the General Assembly by MAIF in
connection with this legislation indicated that MAIF "voided"
approximately 20 policies per month based on the applicant's
misrepresentation of Maryland residency. However, the materials did not
indicate whether or not these cancellations were made within the 60-day
review period. Letter of David C. Trageser, Executive Director of MAIF
concerning Senate Bill 488 (February 18, 1998).
[27] The regulation was amended in 1999 to include assessment of
an administrative fee that was authorized by 1998 legislation with respect
to a policy voided because the applicant failed to satisfy the Maryland
residency requirement. See COMAR 14.07.02.02C(3); Chapter 400,
Laws of Maryland 1998.
[28] The term "subsequently" in the regulation apparently refers to
a time period after the producer makes the preliminary determination of
eligibility, which is described in the immediately preceding portion of the
regulation. See COMAR 14.07.02.03B.
[29] The Van Horn decision noted a conflict among the states as to
whether abrogation of the common law right of recission affects claims
asserted by the insured for the insured's own injuries or damages. Some
jurisdictions have found that rescission is not available even as to those
claims; others have permitted rescission as to property damage (collision)
claims, but not as to mandatory coverages such as PIP; still others have
found rescission to be available as to all claims by the insured. See Van
Horn, 334 Md. at 693 n.8 (collecting cases for each position).
[30] The cancellation procedures for private insurers explicitly
require that a cancellation notice advise the insured of the availability of
MAIF insurance. See IN §27-605(b)(3)(v).
[31] It is conceivable that a claim could be filed against a policy
voided on eligibility grounds within the 60-day review period and that,
based upon the retroactive cancellation of the policy, MAIF would deny
the claim. In that case, the policy would be rescinded without need for a
finding of deliberate misrepresentation. If the claimant filed a complaint
with the Commissioner under the Unfair Claim Settlement Practices Act,
the Commissioner's review would presumably be limited to confirmation
that MAIF had followed its own procedures in denying the claim.
[32] If MAIF rescinds a policy after a claim is filed by an insured, the
insured may invoke the statutory appeal process. However, it is notable
that, if a third party not involved in the misrepresentation asserts a claim
against a MAIF insured under a policy that MAIF declares void for
intentional misrepresentation, the MAIF statute provides no remedy for
that party.
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