The Myth of Bad Faith Insurance

Click here for Part I of this article; click here for Part II.

What to Expect in Bad Faith Litigation

Unless you obtain the carrier’s permission, have a claim that does not exceed $5,000.00, or a claim involving a commercial insurance policy in excess of One Million Dollars, you must file the initial complaint with the Maryland Insurance Administration. C.J.P. 3-1701(c) (2). The M.I.A. has claim forms and instructions on its website. COMAR regulations that apply to this filing are also found on the M.I.A.’s web site. Read the instructions and prepare your Complaint. The Complaint must allege with great specificity how the carrier failed to act in good faith in evaluating your client’s injuries and damages. Include a request for attorney’s fees and attach your retainer agreement to the complaint. A bold allegation that the carrier’s offer was too low will always fail.

You must also attach all of the medical records, bills, and correspondence between you and the carrier to your complaint. You should bates stamp the medical records and reference the records in your compliant in support of your allegations. Be sure to submit your client’s affidavit that explains all of his injures and the devastating effect the collision and injures has had on his life. This affidavit is an indispensable part of your initial demand packet. The insurance carrier will have 30 days to respond to your complaint. Within 90 days of your initial filing the M.I.A. will issue its opinion based solely upon the documents submitted by each party. The M.I.A. has taken more than 90 days to issue some opinions. If the opinion is not rendered within this 90 day window the insurance carrier is deemed to have acted in good faith. Ins. Art. 27-1001(e)(1)(ii).

There is no provision in the statute for an extension of time for the M.I.A. to render its opinion. If the M.I.A. issues a favorable opinion after the 90 day period you should carefully decide whether to take an immediate appeal of this decision, even though it is favorable to your client. The insurance carrier may conclude that the M.I.A. decision in your favor is a nullity, fail to pay the award, and then attack the opinion on appeal. When the M.I.A. does not rule in your favor, its order will become a final judgment after 30 days.

Bad Faith Trial

On the 31st day following the M.I.A. decision you should file a new Complaint in the Circuit Court. The Complaint should contain two counts; one count alleging a violation of Insurance Article, Section 27-1001, and a second count alleging a breach of the insurance contract. To be absolutely sure that you do not run afoul of the quagmire contained in the bad faith statute and corresponding laws applicable to appeals from administrative agencies, you should also consider filing a Petition for Judicial Review of the M.I.A.'s decision and then request that both matters be consolidated for trial purposes. (Don't forget your request for a jury trial.) Filing both a Petition for Judicial Review and a totally separate Complaint will afford the Plaintiff's lawyer protection from whatever Motion to Dismiss the insurance carrier can fathom.

Before the Court of Special Appeals handed down its decision in Thompson v. State Farm Mutual Insurance Co., 196 Md. App. 235 (2012), clerks' offices were generating non-jury trial scheduling orders for the review of M.I.A. decisions and Plaintiffs had to fight a separate legal battle to obtain a jury trial guaranteed under C. J. P. Section 3-1701(j). In one case (wherein your author represented the Plaintiff) one judge granted the Plaintiff's request for a jury trial and another judge struck the request for a jury trial. Insurance carriers were doing everything in their power to prevent the aggrieved Plaintiff from exercising his right to a trial de novo and to have a jury decide the case. Some judges were buying into this nonsense.

The Plaintiff's right to a jury trial and the right to a de novo hearing on first party appeals in the Circuit Court was judicially confirmed on December 2, 2012, when Judge Zarnoch opined in Thompson that, "…we believe the damage remedy/jury trial right authorized by CJP 3-1701, is independent from a true de novo review of the MIA administrative determination.…" He also opined, "If a Plaintiff under CJP Section 3-1701 seeks to present evidence before a jury, he or she is acting under that specific statute… This is "the case" for which the General Assembly conferred a jury trial right under C.J.P. 3-1701(j)." Id. at 247.

It is interesting to note that a de novo review under the Administrative Procedures Act usually means a review on the record; however, a de novo review in the context of a review of the M.I.A.'s decision under C.J.P. 3-1701 and Insurance Article, Section 27-1001, means a brand new jury trial. Senate Bill 389 amended Article 1, Section 32 (b) (3) to insure that de novo review conferred a new trial on the merits. Thompson also held that the venue for the appeal of a "first party bad faith" M.I.A. decision is not the Circuit Court for Baltimore City as authorized under Insurance Article, Section 2-215(c). The proper venue for a de novo trial will most likely lie in the county where the collision occurred.

In summary, Thompson, solidified the Plaintiff's right to a jury trial along with the right to a de novo trial on the merits but eliminated Baltimore City as the proper venue for an appeal of the M.I.A.'s decision.

Thompson also held that the "mere filing of an administrative complaint with the MIA preserves the plaintiff's civil action under C.J.P. Section 3-1701." Id. at 249. The Plaintiff in Thompson was dissatisfied with the M.I.A.'s initial decision, elected to forego an internal appeal to the Office of Administrative Hearings, and did not file a Petition for Administrative Review, but instead filed a Complaint in the Circuit Court for Baltimore City under C.J.P. 3-1701.

Defense Experts

In assessing whether the carrier has acted in "good faith," one could challenge the carrier's selection of an " Independent" physician to conduct a paper review of the file. One could claim that by selecting a physician to review the file who is financially joined to the carrier at the hip does not demonstrate an intention to deal with the insured fairly and honestly, but only to find a reason to deny payment of the claim. Unfortunately the M.I.A. has given its blessing on this tactic and concluded that, "The use of a medical expert who works primarily for insurance companies does not rise to the level of absence of good faith." (See Opinion 2009-40.) A jury may disagree. By the same token, if your expert medical witness is not the Plaintiff's treating physician, be prepared for a similar argument by the defense.

Parting Thoughts

Attorney fees are available if you prevail in a "first party" action. However, the M.I.A. firmly believes that the statute does not authorize any lawyer to receive one-third of the award as attorney fees even though the fee agreement executed by the client clearly indicates otherwise. Interesting to note that when retired judges were rendering decisions for the M.I.A. and interpreting the statute, Plaintiff's lawyers were receiving one-third attorney fees for their hard work. After July of 2008, one person's interpretation of the statute has resulted in a prohibition of attorney fees based upon a contingent fee agreement. The M.I.A. completely discounts the fee agreement and somehow reaches a decision on the proper amount of attorney fees to be awarded, should you prevail. Query: Did all of the retired judges who interpreted the statute and awarded one-third attorney fees prior to July 2008, get it wrong? One can only speculate that if a person has never tried a first party personal injury case against an insurance carrier, it would be difficult for that person to comprehend why attorney's fees equal to one-third of the overall award is fair compensation in these types of cases. My vote is to bring back those judges.

Good luck with your navigating this maze with your case and let us know if you have any questions!

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