What would happen if Maryland’s rule of construction for insurance policies was turned on its head and Maryland courts construed policy language against insurers, rather than granting insurers deference? We may never know. When faced with the question recently, Maryland’s highest court, in an unusual move, dismissed People’s Insurance Counsel Division v. State Farm Fire and Casualty Co. as “improvidently granted.” Despite the case’s potential to impact thousands of Marylanders, the Court’s majority declined to decide the case on its merits without explanation, generating a strong and heated dissent.
The case arose from the collapse of Gregory and Moira Taylor’s carport from the weight of snow during the blizzard of 2010. The Taylors’ State Farm insurance policy contained a clause covering “the sudden collapse of a building,” so the Taylors thought they were covered. State Farm denied the claim, arguing that the term “building,” which was not defined in the policy, only applies to structures with walls. The Taylors’ carport, of course, did not have walls, and was thus deemed by State Farm not to be a “building,” and thus, not covered by the policy.
The Taylors filed a complaint with the Maryland Insurance Administration under Sections 27-303 and 27-1001 of Maryland’s Insurance Article, which were enacted to protect policyholders against unfair claim settlement practices and an insurer’s lack of good faith in adjusting certain claims. The Taylors argued that State Farm applied an arbitrarily narrow interpretation of the policy term “building” to avoid payment not only on the Taylors’ claim but also to avoid paying on similar claims other policyholders might file in the wake of the blizzard.
According to the dissent, State Farm cited no precedent for its narrow definition of “building.” The dissent also noted that the insurer failed to submit any evidence to contradict the Taylors’ assertion that State Farm’s narrow construction of “building” was in fact an unlawful strategy to avoid substantial liability arising from, for lack of a better term, a flurry of blizzard claims. Critically, State Farm’s employees testified that they were unaware of State Farm previously excluding carports from the definition of the term “building,” as used in State Farm policies.
Despite these arguments, the Maryland Insurance Administration found no unfair claims settlement practices and no failure by State Farm to act in good faith, granting deference to State Farm’s interpretation of its own policy language. On appeal, the state circuit court affirmed. After another appeal, Maryland’s Court of Special Appeals similarly held that the denial of the claim was not arbitrary or capricious, and found no lack of good faith in State Farm’s actions.
The People’s Insurance Counsel Division then petitioned Maryland’s highest court, requesting an answer to the question of whether Maryland courts’ current deference to insurance companies’ interpretation of their own policies should be reversed, such that insurance policy terms might instead be construed strictly against the insurer. Not only would reversal of the law be consistent with other states, People’s Counsel argued, but this alternate approach would align with Maryland’s contract law, which construes terms strictly against the drafter – which is the insurance company for the vast majority of policies. Maryland’s highest court was also asked to take another look at the possibility that State Farm’s actions lacked good faith, given the absence of any previous definition or policy excluding carports from the clause’s coverage.
Initially, Maryland’s high court granted the request to review these issues; appellate briefs were then filed and an oral argument was held in November. After all of this, in an unusual move, the Court dismissed the petition as “improvidently granted.” According to the dissent, the dismissal of the request at this late stage left the litigants and the public “in the dark again.”
The dismissal was unusual because Maryland law sets a very high standard for the dismissal of a petition to review issues once it has been granted. The only three circumstances that may support a dismissal are: the Court’s subsequent conclusion that there is no matter of public importance; that the issue(s) to be decided were not properly preserved; or that the record for the appeal was inadequate.
The dissent quoted retired Maryland Court of Appeals Chief Judge Robert M. Bell in asserting that “[o]nce a … worthy case has been accepted … there must be a compelling reason not to decide it.” As Judge Bell explained, the very purpose of the Court of Appeals is to decide complex and publicly relevant issues, so to deny hearing the merits of a worthy case is to deny the Court’s “raison d’etre.”
As the dissent pointed out, not only does this dismissal leave the issue of Maryland’s law on insurance policy construction unresolved, but it draws into question the credibility of the Court’s case selection, wastes judicial resources and “gives short shrift to the litigants” who presumably spent many hours preparing and briefing the case. For the time being, Maryland’s commercial insurance consumers should be aware that Maryland will continue to defer to the insurer’s interpretation of its own policy language.
Alex Brown is the Chair of Shapiro, Sher, Guinot & Sandler P.A.’s Insurance Law Department, and a former Senior Counsel to the Maryland Insurance Administration. If you have questions about your commercial insurance, personal insurance or other issues that you would like to discuss, please feel free to contact Mr. Brown at 410-385-4220.