USA – MARYLAND Trends and Developments Contributed by: Bryan D. Bolton, James F. Taylor and Brett Baulsir, Funk & Bolton, P.A.
land courts have not ordinarily been willing to impose an affirmative duty to protect the interests of another. Property and casualty insurance policies and individ- ual disability insurance policies issued, sold or deliv- ered in Maryland can be the subject of a statutory claim for lack of good faith. By statute, good faith is defined to mean: “an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim”. This statute only applies to first-party claims between an insured and a property, casualty, or disability insurer, not to third-party claims. As a matter of law, however, an insurer cannot have failed to act in good faith based on any delay in determining coverage or payment if the insurer acted within the time specified by statute or regulation. Compliance with the statutory or regula- tory timeline is a complete defence to a lack of good faith claim based on a delayed decision. In a lack of good faith action, an insured can recover “actual damages”, up to the policy limits, along with attorneys’ fees, expenses, litigation costs, and inter- est. This claim is again subject to an administrative exhaustion requirement. For this reason, a circuit court action can only be commenced after a final deci- sion by the MIA. Any circuit court appeal of an MIA decision is de novo. A party may also elect to have the case tried by a jury in the Circuit Court. Maryland recognises a tort claim for bad faith in con- nection with third-party liability insurance. An auto- mobile liability insurer, for example, may be subject to a claim of bad faith if it fails to resolve a claim within policy limits. Maryland, however, has not allowed pre- mature filing of bad faith claims where there has been no excess judgment and the insurer is continuing to provide a defence. Maryland also recognises that an insurer’s offer to settle for the policy limits before entry of an excess verdict will generally insulate an insurer from a bad faith claim. Maryland’s unique legal landscape also limits property and casualty insurers from restricting underperforming producers by both restricting cancellations or amend- ments of producer agreements based on adverse loss ratios and prohibiting cancellations or amendments of
producer agreements, or refusal of business from an insurance producer, for arbitrary, capricious, unfair, or discriminatory reasons. The MIA has sanctioned insurers for restricting agents’ ability to place business with an insurer where the restriction results in agents not placing business with the insurer that qualified under the insurer’s underwrit- ing guidelines and for which the insurer has a filed and approved rate, regardless of whether the insurer char- acterised the restrictions as unrelated to underwriting. Insurers cannot encourage appointed agents to adopt agency underwriting guidelines inconsistent with the insurer’s general underwriting guidelines and filed rates, or apply agency-specific underwriting require- ments/scores, loss ratio benchmark requirements, or impose disciplinary programmes that might result in an agency not placing business with the insurer which qualifies under its underwriting guidelines and filed and approved rating plan. Insurers seeking to take agency-specific actions, whether formal or informal, must be careful not to run afoul of Maryland’s prohibition on the application of loss-ratio standards and avoid taking action that requires or encourages agencies not to place busi- ness with the insurer that qualifies under the insurer’s underwriting guidelines and filed rating plan. If an agency files a complaint with the MIA, then the same administrative litigation process applies to the agency complaint. Maryland laws aimed at preventing unfair underwrit- ing discrimination prohibit insurers from cancelling or refusing to underwrite or renew particular insurance risks or classes of risk except by the application of standards reasonably related to the insurers’ econom- ic and business purposes. The MIA has interpreted the “economic and business purposes” standard to prohibit an insurer from refusing to underwrite a risk if the insurer has a filed and approved rate applicable to that risk. If an insurer’s rating rules provide a rate for the risk, then the insurer cannot reject that risk, either directly or through agent underwriting, and regardless of whether it is a declination or non-renewal. Both Maryland courts and insurance regulators have become actively involved in addressing the legal land-
327 I NSURANCE L I T IGATI O N 2026
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