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In a case arising out of an agent's erroneous tax advice and cash value projections in connection with the sale of "split dollar" life insurance, the Maryland Court of Appeal held that the insurance laws prohibiting unfair trade practices are not the exclusive or primary remedy for alleged acts of fraud, negligent misrepresentation, and negligence in the sale of insurance. Zappone v. Liberty Life Insurance Co., ___ Md. ___, ___ A.2d ___ (Md. Court of Appeals, March 11, 1998). In reaching that result, the Court of Appeals overruled contrary precedent of the Court of Special Appeals in Vincente v. Prudential Ins. Co. of America, 105 Md. App. 13, 658 A.2d 1106 (1995). The Maryland Insurance Code Ann., Title 27, currently codifies laws prohibiting unfair trade practices. Among other things, it prohibits unfair sales practices, such as misrepresentations about policies (Md. Ins. Code Ann. § 27-202), statements about the insurance business which are untrue, deceptive or misleading (Md. Ins. Code Ann. § 27-203), or any knowing or willful false or fraudulent statement or representation with reference to any application for insurance (Md. Ins. Code Ann., § 27-406). The Insurance Code provides for charges of unfair trade practices to be made to the Insurance Commissioner, notices of hearings, intervention by interested persons, hearings, and the Commissioner's issuance of cease and desist orders. Md. Ins. Code Ann. § 27-103. Various sanctions are available to the Commissioner if violations are found. The Maryland Court of Special Appeals had held in Vincente, supra, that the remedies set forth in the unfair trade practices subtitle were "exclusive", and also held that those remedies must be exhausted before resort to any other remedy. The Court of Appeals analyzed the statutory language and legislative history of the Unfair Trade Practices subtitle, and concluded that there is no support to find that the administrative remedies there provided for are exclusive. Further, the Court found that the causes of action asserted by the plaintiffs -- deceit and negligence -- are wholly independent of the Unfair Trade Practices subtitle, and do not require interpretation of the Insurance Code or any regulations by the Commissioner. Based on the statutory language, the Court concluded that the administrative remedies are not intended to be primary, and "that other remedies under law are fully concurrent." The Insurance Code's prohibitions against unfair claim settlement practices, Md. Ins. Code Ann., §§ 27-301 to 27-306, were not at issue in Zappone. Under those provisions, unfair claim settlement practices include (1) misrepresentation of pertinent facts or policy provisions that relate to the claim or coverage at issue; (2) refusal to pay a claim for an arbitrary or capricious reason; (3) the attempt to settle a claim based on an application that is altered without notice to, or without the knowledge or consent of, the insured; (4) failure to include with each claim paid to an insured a statement of the coverage under which payment is being made; (5) failure to settle a claim promptly whenever liability is reasonably clear under one part of a policy, in order to influence settlements under other parts of the policy; and (6) failure to provide promptly on request a reasonable explanation of the basis for a denial of a claim. However, based on the Court of Appeals' reasoning, it is likely that the administrative remedies with respect to unfair claim settlement practices would also be held to be neither exclusive nor primary, and that other remedies under law are fully concurrent. By David B. Stratton |
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