USA – MARYLAND Trends and Developments Contributed by: Bryan D. Bolton, James F. Taylor and Brett Baulsir, Funk & Bolton, P.A.
opposed to the Insurance Commissioner, to issue cer- tain orders. After the Administration issued an order, that order was challenged, among other grounds, as an unlawful delegation to the Administration in viola- tion of the Maryland Constitution’s separation of pow- ers doctrine. Although the General Assembly failed to provide an administrative remedy for “Administration” orders, the Administration has recognised its orders are subject to the same hearing rights and require- ments as orders issued by the Insurance Commis- sioner. Challenges to this legislation are ongoing and worth watching. A private party cannot circumvent the comprehensive remedial scheme established under the Insurance Article by pursuing a private cause of action. If a stat- ute provides a special form of remedy, then a plaintiff must use that form; when a statutory remedy is pro- vided, that remedy is exclusive. An individual cannot pursue a tort action for damages in court based on the same issues advanced or that should have been advanced in an administrative proceeding. According to the Supreme Court of Maryland, state insurance laws regulating claims practices are “in the nature of governmental regulations and [do] not create private rights of action”. The Supreme Court of Maryland, however, has recognised that common law claims for fraud, negligent misrepresentation, and negligence arising out of the sale of insurance are independent of the Insurance Article and are not subject to the doctrine of pursuit and exhaustion of administrative remedies. At the same time, the Appellate Court of Maryland, in Matter of Holder, 268 Md. App. 595 (2026), recently recognised a party is collaterally estopped from chal- lenging the factual findings in a final decision by the Insurance Commissioner. The case arose from a pro- ceeding initially premised on unfair insurance claim practices, but the insurer was found not to have violat- ed Maryland law because the underlying lawsuit giv- ing rise to the alleged unfair practice involved allega- tions of intentional acts by the insured, which were not covered by the policy and could not possibly give rise to a duty to defend. Rather than seek judicial review of that decision, the insured filed a new proceeding with the Insurance Commissioner alleging the denial
of coverage was not in good faith based on a different Insurance Article provision. In the second case, an Administrative Law Judge ruled the insurer could not have violated this other provision of the Insurance Article because the prior proceeding already determined there was no insurance coverage and no duty to defend. Since no coverage existed in the first place, the denial of coverage could not have been without good faith. The insured filed a petition for judicial review from this second decision. After fil- ing the petition for judicial review, the insured filed an amended complaint adding new civil law claims. The Circuit Court affirmed the Administrative Law Judge’s decision and dismissed the amended complaint. On appeal, the Appellate Court of Maryland confirmed the second proceeding was barred by collateral estoppel and that the insured could not raise new civil claims in an amended complaint in a petition for judicial review. Although the complex administrative litigation envi- ronment in Maryland can sometimes be costly and challenging, Maryland compensates for this inconven- ience to some degree by not recognising a cause of action against an insurer for bad faith failure to pay a first-party insurance claim. Maryland has made a con- sidered decision not to recognise a tort action for bad faith failure to settle with an insured in the first-party context. Even a bad faith negligence claim against an insurer by a third-party beneficiary is considered a “first-party” claim because the beneficiary “stands in the shoes of the insured”. This is important because Maryland does not recognise a tort action against an insurer for bad faith failure to pay an insurance claim. The Supreme Court of Maryland has further recog- nised that the duty owed by an insurer who “mistak- enly denies coverage... to the insured” is “entirely con- tractual”. An insurer’s mistaken failure to provide a defence based on the belief that there is no insurance contract or no insurance coverage exists does not give rise to a tort claim for bad faith. Any such claim for coverage sounds in contract and is limited to the coverage policy limits and defence costs. Maryland law further holds that the insured-insurer relationship is not fiduciary in nature. Absent any spe- cial (fiduciary) relationship between the parties, Mary-
326 I NSURANCE L I T IGATI O N 2026
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