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United Insurance Co. of America v. Maryland Insurance Administration

Court of Appeals of Maryland

August 25, 2016

UNITED INSURANCE COMPANY OF AMERICA and THE RELIABLE LIFE INSURANCE COMPANY
v.
THE MARYLAND INSURANCE ADMINISTRATION, AND AL REDMER, JR., IN HIS OFFICIAL CAPACITY AS COMMISSIONER

          Argued: June 1, 2016

         Circuit Court for Anne Arundel County Case No. 02-C-13-179785

          Barbera, C.J. Greene, Adkins, McDonald, Watts, Hotten, Battaglia, Lynne A. (Retired, Specially Assigned), JJ.

          OPINION

          Hotten, J.

         We consider whether a party who challenges the constitutionality and retroactive effect of a newly-enacted Maryland statute must pursue and exhaust administrative remedies before seeking declaratory relief in the circuit court. Petitioners, United Insurance Company of America and the Reliable Life Insurance Company, insurance providers in the State of Maryland, filed a declaratory action against Respondents, the Maryland Insurance Administration, et al., ("MIA") in the Circuit Court for Anne Arundel County, challenging the retroactive enforcement of Md. Code (2011 Repl. Vol., 2015 Supp.) § 16-118 of the Insurance Article ("Ins."). Section 16-118 imposes a duty on an insurer who "issues, delivers, or renews a policy of life insurance or an annuity contract . . ." in the State to "perform a comparison of [their] in-force life insurance policies, annuity contracts, and retained assets accounts against the latest version of a death master file to identify any death benefit payments that may be due. . . ." on a regular or semi-annual basis. Ins. § 16-118(c)(1)-(2)(i). Prior to this legislation, insurers were under no obligation to research whether a policyholder had died, and the statute did not indicate whether its provisions apply retroactively to existing insurance policies.

         The circuit court dismissed Petitioners' action based on the failure to exhaust administrative remedies afforded by the Insurance Article. In an unpublished opinion, the Court of Special Appeals agreed, and affirmed the judgment of the circuit court. United Insurance Company of America et al. v. Maryland Insurance Administration et al., No. 0020, Sept. Term 2014, 2015 WL 5968833 (Md. Ct. Spec. App. Oct. 14, 2015). Thereafter, we granted certiorari. For the reasons that follow, we shall affirm the judgment of the Court of Special Appeals.

         FACTUAL AND PROCEDURAL BACKGROUND

         Petitioners' in-force life insurance policies

         Petitioners offer life insurance policies to lower income individuals and families in the State of Maryland. The policies are subject to extensive regulation by the MIA, the agency that administers and regulates the State's insurance market. As of December 2011, Petitioners retained a combined total of approximately 135, 000 in-force policies in the State. The average face value of the policies was $5, 000, with average monthly premiums of approximately $7.00. Petitioners calculated premium rates through a process that relies upon actuarial assumptions of an insured's life expectancy, the timing and frequency of claims payments, the anticipated rate of return on invested assets, and financial projections concerning anticipated administrative costs incurred during the policy benefit period.

         The policies provided that insurance proceeds would be paid upon "receipt of due proof of death" of the insured. Specifically, United Insurance Company of America's policies defined "due proof of death" as "a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or any other proof satisfactory to [the insurer]." Petitioners' premium rates reflected costs savings realized by placing the obligation on beneficiaries to provide proof of death.

         The enactment of § 16-118 of the Insurance Article

         Maryland Senate Bill 77 (2012) was passed by the General Assembly, signed into law as § 16-118 of the Insurance Article, and became effective on October 1, 2013. The bill was introduced in response to the growing concern of questionable and unfair settlement practices by major life insurance companies, which allegedly often led to "unknowing beneficiaries of life insurance policies" missing timely receipt of the settlements owed.[1] See Testimony of Senator Delores G. Kelley on Senate Bill 77-Life Insurance and Annuities-Unfair Claim Settlement Practices-Failure to Cross-Check Death Master File Before the Senate Finance Committee on January 26, 2012, 430th Sess. (2012). The relevant provisions of Ins. § 16-118 provide:

         Duty of insurer to perform comparison of life insurance policies, annuity contracts, and retained asset accounts

(c)(1) An insurer that issues, delivers, or renews a policy of life insurance or an annuity contract in the State shall perform a comparison of the insurer's in-force life insurance policies, annuity contracts, and retained asset accounts against the latest version of a death master file[2] to identify any death benefit payments that may be due under the policies, contracts, or retained asset accounts as a result of the death of an insured, annuitant, or retained asset account holder.
(2) An insurer shall perform the comparison required under paragraph (1) of this subsection:
(i) at regular intervals, on at least a semiannual basis; and (ii) in good faith, using criteria reasonably designed to identify individuals whose death would require the payment of benefits by the insurer under a life insurance policy, annuity contract, or retained asset account.
(3) For a group life insurance policy, an insurer is not required to perform the comparison required under paragraph (1) of this subsection unless the insurer provides full record-keeping services to the group life insurance policy holder.

Ins. § 16-118 (c)(1)-(3).

         If the comparison reveals a match in the Social Security Administration's Death Master File, an insurer is required to 1) "conduct a good faith effort to confirm the death of the insured, annuitant, or retained asset account holder using other available records and information;" 2) "determine whether benefits are due under the applicable life insurance policy, annuity contract, or retained asset account;" and 3) "use good faith efforts to locate the beneficiary" and "provide to the beneficiary the appropriate claims forms and instructions necessary to make a claim[, ]" "if benefits are due under the policy, contract, or retained asset account." Ins. § 16-118(d)(1)(i)-(iii)(1)-(2). The statute does not reflect whether insurers are required to perform the comparison for in-force policies prior to the statute's effective date.

         Failure to comply with the requirements of Ins. § 16-118 constitutes an "unfair claim settlement practice[, ]" Ins. § 27-303(10), punishable by civil penalties up to $2, 500 per violation, Ins. § 27-305(a)(1) or restitutionary penalties, Ins. § 27-305(c)(1). For violations of Ins. § 27-304 (unfair claim settlement practices committed with frequency), the Commissioner is authorized to revoke or suspend an insurer's license, Ins. §§ 27-305(b); 4-113; issue cease and desist orders, Ins. §§ 27-103; 4-114; or impose misdemeanor penalties, Ins. § 1-301.

         Petitioners' challenge to Ins. § 16-118

         On February 28, 2013, Petitioners, through their representatives, attended a meeting with the then-Insurance Commissioner, Therese M. Goldsmith ("Commissioner Goldsmith"), [3] who indicated her view that Ins. § 16-118 applied to all in-force policies, including those in effect prior to the statute's effective date. Commissioner Goldsmith further advised that she would enforce the requirements of the statute against all of Petitioners' in-force policies. Thereafter, in July 2013, Petitioners filed a civil action against the MIA and Commissioner Goldsmith in the Circuit Court for Anne Arundel County, seeking a declaration that the statute was inapplicable to insurance policies issued prior to its effective date.

          Petitioners advanced the following grounds for relief: 1) the retroactive enforcement of the statute violated Articles 19[4] and 24[5] of the Maryland Declaration of Rights and Article III, § 40[6] of the Maryland Constitution; 2) the retroactive enforcement of the statute abrogated their substantive contract rights in violation of those same provisions; and 3) the retroactive enforcement of the statute constituted an unconstitutional impairment of their contractual rights in violation of Article I, § 10[7] of the United States Constitution.

         Petitioners sought a judgment declaring that the statute did not apply retroactively to their in-force policies as of the effective date, or alternatively, that retroactive enforcement of the statute would be void because it violated one or more constitutional provisions. The MIA filed a motion to dismiss, alleging that the Insurance Article provided administrative remedies that Petitioners were required to exhaust before seeking relief in the circuit court. In granting MIA's motion, the court held that the administrative remedy outlined in Ins. § 2-210[8] must be exhausted before Petitioners pursued a declaratory judgment, given the strong presumption that the available remedy was primary, i.e., a remedy in which a claimant must first invoke and exhaust before seeking a judicial remedy, and the absence of factors weighing against that presumption.

         The court further held that Petitioners' claim did not fall within the exception to the administrative exhaustion requirement, since the claim was not solely a constitutional challenge to the General Assembly's authority to enact retroactive legislation, but was also a challenge to the MIA's interpretation and application of the law regarding retroactivity. Thereafter, Petitioners noted a timely appeal to the Court of Special Appeals.

         In considering the factors enunciated in Zappone v. Liberty Life Ins. Co., 349 Md. 45, 64-66, 706 A.2d 1060, 1069-70 (1998), which outlined the test for determining whether an administrative remedy is primary, the Court of Special Appeals held that Ins. § 2-210 provided a primary administrative remedy for the following reasons: the statute was comprehensive and encompassed challenges to the MIA's interpretation of Ins. § 16-118; Petitioner's challenge was dependent upon the Insurance Article's statutory scheme since it "pertain[ed] to how the [MIA] propose[d] to interpret and enforce the statutory scheme and how the [MIA's] interpretation affects their constitutional rights[;]" and assessing the nature and extent of the alleged impairment of Petitioners' contractual rights were matters within the purview of the agency's expertise.

         The Court also accorded weight to the MIA's view that it maintained primary jurisdiction over Petitioners' challenge. Additionally, the Court observed that Petitioners' contention did not fall within the constitutional exception to the rule requiring exhaustion of administrative remedies, reasoning that "Petitioners assert[ed] a non-constitutional theory of relief, [in which] invocation of the constitutional exception [was] inappropriate." This Court subsequently granted certiorari.

         STANDARD OF REVIEW

         Whether a plaintiff must exhaust administrative remedies prior to bringing suit is a legal issue which the Court of Appeals reviews de novo. See Falls Road Community Ass'n, Inc. v. Baltimore County, 437 Md. 115, 134, 85 A.3d 185, 197-98 (2014); see also Forster v. State, Office of Public Defender, 426 Md. 565, 580, 45 A.3d 180, 189 (2012) ("In addition to Maryland Rule 8-131(a) indicating generally that we may consider issues 'raised in or decided by the trial court, ' we may consider, [sua sponte], whether available administrative remedies have been exhausted.") (emphasis omitted).

         DISCUSSION

         I. Petitioners are required to first pursue and exhaust available administrative remedies before seeking relief in the circuit court

         The doctrine of administrative exhaustion concerns "the relationship between legislatively created administrative remedies and alternative statutory, common law or equitable judicial remedies." Prince George's County. v. Ray's Used Cars, 398 Md. 632, 644, 922 A.2d 495, 502 (2007). In Ray's Used Cars, 398 Md. at 644-45, 922 A.2d at 502, we observed that "[w]henever the [General Assembly] provides an administrative and judicial review remedy to resolve a particular matter or matters, the relationship between that administrative remedy and a possible alternative judicial remedy will ordinarily fall into one of three categories[:]"

[T]he administrative remedy may be exclusive, thus precluding any resort to an alternative remedy. Under this scenario, there simply is no alternative cause of action for matters covered by the statutory administrative remedy.
[T]he administrative remedy may be primary but not exclusive. In this situation, a claimant must invoke and exhaust the administrative remedy, and seek judicial review of an adverse administrative decision, before a court can properly adjudicate the merits of the alternative judicial remedy.
[T]he administrative remedy and the alternative judicial remedy may be fully concurrent, with neither remedy being primary, and the plaintiff at his or her option may pursue the judicial remedy without the necessity of invoking and exhausting the administrative remedy.[9]

(quoting Zappone v. Liberty Life Ins. Co., 349 Md. 45, 60-61, 706 A.2d 1060, 1067-68 (1998) (footnote omitted) (emphasis added); see also Carter v. Huntington Title & Escrow, LLC, 420 Md. 605, 616, 24 A.3d 722, 728-29 (2011) ("[W]e held that, where the [General Assembly] provides '[(1)] an administrative and judicial review remedy . . . and [(2)] a possible alternative judicial remedy' for a 'particular matter or matters, ' we must determine whether it intended the agency to have exclusive, primary, or concurrent jurisdiction.") (citation omitted).

         In the absence of specific statutory language indicating the type of administrative remedy, there is a rebuttable presumption that an administrative remedy was intended to be primary. Zappone, 349 Md. 63, 706 A.2d at 1070. Thus, "a claimant cannot maintain the alternative judicial action without first invoking and exhausting the administrative remedy." Id. (citations omitted). See also Maryland Reclamation Associates, Inc. v. Harford County, 342 Md. 476, 493, 677 A.2d 567, 576 (1996) ("[T]his Court has 'ordinarily construed the pertinent [legislative] enactments to require that the administrative remedy be first invoked and followed' before resort to the courts."); Clinton v. Board of Education of Howard County, 315 Md. 666, 678, 556 A.2d 273, 279 (1989) ("Ordinarily when there are two forums available, one judicial and the other administrative, . . . and no statutory directive indicating which should be pursued first, a party is often first required to run the administrative remedial course before seeking a judicial solution."). The remedial provision at issue, Ins. § 2-210(a)-(b), provides the following:

         In general

(a) (1) The Commissioner may hold hearings that the Commissioner considers necessary for any purpose under this article.
(2) The Commissioner shall hold a hearing:
(i) if required by any provision of this article; or
(ii) except as otherwise provided in this article, on written demand by a person aggrieved by any act of, threatened act of, or failure to act by the Commissioner or by any report, regulation, or order of the Commissioner, except an order to hold a hearing or an order resulting from a hearing.
Demand for hearing

(b)(1) A demand for a hearing shall state the grounds for the relief to be demanded at the hearing.

(2)Within 30 consecutive days after receiving a demand for a hearing, the Commissioner shall:

(i) grant and, unless postponed by mutual consent of the parties, hold the hearing; or

(ii) issue an order refusing the hearing.

(3) If the Commissioner does not grant or refuse a hearing within the 30-day period, the hearing is deemed to have been refused.

Petitioners aver that administrative exhaustion is not required, since Ins. § 2-210(a)(2) provides a concurrent, rather than a primary remedy, in which they have the option to pursue administrative relief or a declaratory judgment. We disagree. The Insurance Article does not expressly or impliedly indicate whether Ins. § 2-210 is a concurrent remedy, and Petitioners' argument fails to ...


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