Daughton v. Md. Auto. Ins. Fund.

• Decision Date: 28 April 2011
• Docket Number: Sept. Term,2009.,No. 2770,2770
• Citation: 198 Md.App. 524,18 A.3d 152
• Parties: Mary Katherine DAUGHTONv.MARYLAND AUTOMOBILE INSURANCE FUND.
• Court: Court of Special Appeals of Maryland

198 Md.App. 524

18 A.3d 152

Mary Katherine DAUGHTON

v.MARYLAND AUTOMOBILE INSURANCE FUND.

No. 2770

Sept. Term

2009.

Court of Special Appeals of Maryland.

April 28, 2011.

John S. Spadaro, Hockessin, DE (Lawrence A. Melfa, Francomano, Butler, Melfa & Taylor PA, on the brief) Towson, MD, for appellant.Samuel P. Piazza (Douglas F. Gansler, Atty. Gen., on the brief), Annapolis, MD, for appellee.Panel: KRAUSER, C.J., EYLER, DEBORAH S., JAMES P. SALMON (Retired, Specially Assigned), JJ.EYLER, DEBORAH S., J.

In the Circuit Court for Baltimore County, Mary Katherine Daughton, the appellant, sued the Maryland Automobile Insurance Fund (“MAIF”), the appellee, for breach of contract and declaratory judgment, alleging 1) that it failed to pay her Personal Injury Protection (“PIP”) benefit claim within 30 days, in violation of Md.Code (2006 Repl.Vol., 2010 Supp.) section 19–505 of the Insurance Article (“Ins.”); and 2) that it then failed to pay interest on the late payment, in violation of Ins. section 19–508. Daughton's complaint sought class action certification, but the court never ruled on that issue.

MAIF moved for summary judgment, arguing, inter alia, that the claims against it were barred by Md.Code (2009 Repl.Vol., 2010 Supp.), section 12–202 of the State Government Article (“SG”). Specifically, MAIF asserted that it is an agency or instrumentality of the State and therefore enjoys sovereign immunity; that, under SG section 12–202, its sovereign immunity for breach of contract claims is waived only when suit is filed within one year; and that Daughton's action was filed outside that period.

The court held an evidentiary hearing on the sovereign immunity aspect of MAIF's summary judgment motion and, thereafter, in a thorough memorandum opinion and order, ruled in MAIF's favor on both of Daughton's claims. ¹ This appeal followed.

Daughton raises three questions for review, all of which are arguments challenging the circuit court's decision to grant summary judgment to MAIF. As rephrased, they are:

I. Did the circuit court err in ruling that MAIF is an agency of state government that enjoys sovereign immunity when it engages in the business of automobile insurance?

II. Did the circuit court err in ruling that there is no implied private right of action arising under Ins. section 19–508 for the recovery of statutory interest?

III. Did the circuit court err by concluding that Daughton's claims were barred even though her insurance contract with MAIF was not “ completed,” within the meaning of SG section 12–202, when she filed suit? ²

For the following reasons, we shall affirm the judgment of the circuit court.³

LEGAL FRAMEWORK

A. Creation and Operation of MAIF

In 1972, the General Assembly enacted a “sweeping overhaul” of the automobile insurance laws in Maryland. GEICO v. Insurance Comm'r, 273 Md. 467, 480, 330 A.2d 653 (1975); Laws of 1972, ch. 73. The new legislation required every owner of a motor vehicle registered in Maryland to maintain a liability insurance policy with specified minimum coverage. Laws of 1972, ch. 73. It simultaneously created MAIF. MAIF was established to, and still does, serve dual roles: (1) to act as the insurance carrier of last resort for drivers unable to obtain motor vehicle liability insurance in the private market; and (2) to act as a successor to the Unsatisfied Claim and Judgment Fund (“UCJF”). ⁴ In this case, our focus is on MAIF's role as the insurance carrier of last resort.

“The purpose of [MAIF] is to provide the financial security required under § 17–103 of the Transportation Article to those eligible persons that are unable to obtain it from” a member of the Industry Automobile Insurance Association (“IAIA”).⁵ Ins. § 20–301. MAIF is governed by a 13–member Board of Trustees. Id. at § 20–202(b)(1). Seven of its members are appointed by the Governor, with the advice and consent of the Senate, and serve at the pleasure of the Governor. Id. at § 20–202(b)(2)(i) and (e) (1). Five of its members are appointed by the Board of Directors of the IAIA and serve four-year terms. Id. at § 20–202(b)(2)(ii) and (c)(2). The final member is the Executive Director and is appointed by the Board of Trustees with the approval of the Governor. Id. at §§ 20–202(b)(2)(iii) and 20–203(a)(1).

MAIF is funded through “revenues, premiums and other receipts provided by law.” Id. at § 20–301(b). Its operating expenses are paid out of these monies, rather than through General Fund appropriations. Id. at §§ 20–301(c) and 20–302(b). Moreover, its debts and obligations are “not a debt of the State or a pledge of the credit of the State.” Id. at § 20–302(c). MAIF's funds are managed and invested by a financial management committee consisting of the Executive Director and two members of the Board of Trustees. ⁶ Id. at § 20–303(a)(1) and (2). “Consistent with minority business purchasing standards applicable to units of State government,” in investing its funds, the financial management committee “shall attempt to use to the greatest extent feasible minority business enterprises.” Id. at § 20–303(c)(1)(i).

If MAIF operates at a loss for a given calendar year, it is entitled to recoup the loss via an assessment against private liability insurance carriers doing business in the State. Id. at § 20–404. The insurers in turn are authorized to pass this cost on to their customers via an “assessment surcharge” on each policy issued in the following fiscal year. Id. at § 20–406.

In its capacity as an insurer, MAIF “issues policies, charges and collects premiums, and adjusts, settles, and pays claims.” 85 Op. Atty. Gen. 132, 133 (2000). Like private liability insurance carriers, MAIF generally is subject to the regulatory scheme set forth in the Insurance Article. Unlike private insurers, however, MAIF is required, with limited exceptions, to provide liability insurance to any owner of a “covered vehicle” who has been rejected for coverage by two IAIA members or who has had his or her policy with an IAIA member canceled or not renewed.⁷ Id. at § 20–502. Different standards also are applied to the rates set by MAIF. Thus, while MAIF's Executive Director is charged with setting MAIF's rates and filing them with the Insurance Commissioner, id. at § 20–507(a) and (b), in the conduct of his review, the Commissioner “shall consider not only the rating principles under Title 11, Subtitle 2 of this article, ⁸ but also the statutory purpose of the Fund under § 20–301 of this title.” ⁹ Id. at § 20–507(d).

B. PIP Coverage

Pursuant to Ins. section 19–505, “each insurer that issues, sells or delivers a motor vehicle liability insurance policy in the State shall provide coverage for the medical, hospital, and disability benefits described in this section.” These benefits are known as PIP benefits. “The primary purpose of [Ins. § 19–505] is to assure financial compensation to victims of motor vehicle accidents without regard to the fault of a named insured or other persons entitled to PIP benefits.” Huntt v. State Farm Mut. Auto. Ins. Co., 72 Md.App. 189, 192, 527 A.2d 1333 (1987) (citations and internal quotations omitted).

Ins. section 19–508(a)(1) requires a motor vehicle liability insurer to pay PIP benefits “periodically as claims for the benefits arise and within 30 days after the insurer receives satisfactory proof of claim.” If the insurer fails to pay PIP benefits within 30 days, overdue payments “shall bear simple interest at the rate of 1.5% per month.” Id. at § 19–508(c).

FACTS AND PROCEEDINGS

From February 17, 2005, until February 17, 2006, Daughton was the named insured under a MAIF automobile insurance policy. On June 2, 2005, she was involved in an automobile accident.¹⁰ Shortly thereafter, she submitted a PIP claim to MAIF for medical expenses allegedly arising from the accident. In November of 2005, more than thirty days after Daughton submitted her claim, MAIF paid it. It did not pay interest on the late PIP payment, however.

Around two and one-half years later, on April 30, 2008, Daughton filed suit against MAIF in the circuit Court for Baltimore County. Her complaint set forth two counts, seeking damages for breach of contract and a declaratory judgment. As noted above, she alleged that MAIF had failed to timely pay her PIP benefits; that as a result she was entitled to statutory interest on the overdue benefits; and that MAIF had failed to pay the statutory interest.

On June 1, 2009, MAIF moved for summary judgment. As relevant to this appeal, it argued that Daughton's breach of contract claim was barred by sovereign immunity because Daughton had not filed suit within the one-year period in which immunity was waived under SG section 12–202; and that the court should declare the parties' rights by ruling that Daughton's claims were barred by sovereign immunity.¹¹

Daughton filed an opposition to the motion for summary judgment, arguing, as pertinent here, that MAIF did not enjoy sovereign immunity in its capacity as a seller of insurance policies.

On September 3, 2009, the circuit court entered an order denying the motion for summary judgment. The order further stated that “both parties should see the need to develop this further so as to avoid a remand by Annapolis for facts upon which the argument of government function or proprietary function are based.” The court suggested that the parties move to bifurcate the issues. Thereafter, MAIF moved for reconsideration or, in the alternative, for separation of the issues. The motion for reconsideration was denied but the issue of sovereign immunity was bifurcated.

On December 1, 2009, the circuit court held an evidentiary hearing on the issue whether MAIF is a State agency or instrumentality and therefore enjoys sovereign immunity.¹² MAIF called one witness, Mark McCurdy, the Director of Government Policy Administration for MAIF. Daughton did not call any witnesses. McCurdy testified at length concerning the governance of MAIF, its financial...