Muhl v. Magan

• Decision Date: 01 September 1987
• Docket Number: No. 153,153
• Citation: 313 Md. 462,545 A.2d 1321
• Parties: Edward J. MUHL, Insurance Commissioner of the State of Maryland et al. v. Michael O. MAGAN. ,
• Court: Maryland Court of Appeals

Page 462

313 Md. 462

545 A.2d 1321

Edward J. MUHL, Insurance Commissioner of the State of Maryland et al. v. Michael O. MAGAN.

No. 153, Sept. Term, 1987.

Court of Appeals of Maryland.

Aug. 29, 1988.

David M. Funk (Bryan D. Bolton, Shapiro and Olander, all on brief), Baltimore, Kathleen M. Sweeney, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., both on brief), Baltimore, for appellants.

George A. Nilson, John A. Singer, Piper & Marbury, Baltimore, Ronald S. Gass, Washington, D.C., amicus curiae for American Ins. Ass'n.

Edward J. Birrane, Jr. (Steven Scott Stephens and Birrane, Harlan & Sharretts, all on brief), Baltimore, for appellee.

Argued Before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, McAULIFFE, and BLACKWELL, JJ., and MARVIN H. SMITH, Associate Judge of the

Court of Appeals of Maryland (retired), Specially Assigned.

RODOWSKY, Judge.

In this administrative appeal from the Insurance Division, involving statutory regulation of medical malpractice underwriting, a combination of circumstances has allowed the case to progress to this Court without the Division ever having expressed a considered evaluation of the merits. Due regard for the administrative process requires that the matter be remanded to the Division for the application of its expertise.

I

It will be helpful to a consideration of the facts of this case, set forth in part II, infra, if we first review certain aspects of the regulatory scheme of the Insurance Code, Md.Code (1957, 1986 Repl.Vol.), Art. 48A. ¹ The Insurance Code is basically the product of a comprehensive revision enacted by Ch. 553 of the Acts of 1963. Subtitle 15 of the Insurance Code, §§ 212 through 240H, addresses unfair trade practices. Section 213 prohibits engaging in unfair trade practices either as defined in, or determined pursuant to, Subtitle 15. With respect to unfair trade practices defined in Subtitle 15, the Commissioner is authorized to issue a cease and desist order against the violator upon a finding of violation after a hearing on notice, including notice of the charges. § 215(a). With respect to undefined unfair trade practices the Commissioner is authorized by § 216 to conduct a hearing, after notice, including notice of charges, and upon finding of a violation which is not discontinued, to cause the Attorney General to seek an injunction.

One of the unfair trade practices addressed in Subtitle 15 is unfairness or discrimination in underwriting. Section 234A(a), containing the particular provisions invoked here, provides in relevant part as follows:

No insurer ... shall ... refuse to underwrite ... a particular insurance risk ... for any reason based in whole or in part upon race, color, creed, sex, or blindness of an applicant or policyholder or for any arbitrary, capricious, or unfairly discriminatory reason. ... No insurer ... may ... refuse to underwrite ... a particular insurance risk ... except by the application of standards which are reasonably related to the insurer's economic and business purposes. At any hearing to determine whether there has been a violation of this section, the burden of persuasion shall be upon the insurer to demonstrate that the ... refusal to underwrite ... is justified under the standards so demonstrated.

"If the Commissioner in a specific instance shall make a finding that an insurer has violated § 234A ... he may, in addition to the exercise of any power granted elsewhere in [Art. 48A], order the insurer to accept the risk...." § 234C.

Consequently, should the Commissioner determine to charge an insurer with violating § 234A, the insurer would have a right to notice of the charges, to notice of a hearing and to a hearing before the Commissioner. In addition, under § 234C any party involved in hearings and proceedings conducted under § 234A may appeal the Commissioner's decision.

When the Insurance Division receives a complaint that an insurer has engaged in conduct potentially constituting an unfair trade practice, it has not been the administrative practice of the Division to issue formal charges based solely upon the complaint. Rather, the Division conducts an informal, preliminary inquiry. At the time of the events with which we are concerned here, the administrative practice was set forth in an August 16, 1985, notice of proposed rule making. See 12 Md.Reg. 1708. The proposed rules, with changes only in style, became effective May 19, 1986, and are codified as Ch. 67, "Preliminary Hearing Regulations," of Subtitle 30, Title 09 of the Code of Maryland Regulations (Regs.).

The Preliminary Hearing Regulations interpret and apply, inter alia, § 35(2) which, together with § 35(3), is integral to the case at hand. Section 35 in its entirety reads:

(1) The Commissioner may hold hearings for any purpose within the scope of this article deemed by him to be necessary.

(2) The Commissioner shall hold a hearing if required by any provision, or upon written demand therefor by a person aggrieved by any act, threatened act or failure of the Commissioner to act, or by any report, rule, regulation or order of the Commissioner (other than an order for the holding of a hearing, or an order on hearing or pursuant thereto). Any such demand shall specify the grounds to be relied upon as a basis for the relief to be demanded at the hearing, and unless postponed by mutual consent, such hearing shall be held within thirty (30) consecutive calendar days after receipt by the Commissioner of demand therefor.

(3) If within such thirty (30) day period the Commissioner does not either (i) grant the hearing, or (ii) issue his order refusing the hearing, as to such previous report, rule, regulation, or order as to which such person so claims to be aggrieved, then the hearing shall thereby be deemed to have been refused.

The purpose of the Preliminary Hearing Regulations is "to establish procedures governing hearings held by the Insurance Commissioner and requested by persons before charges being issued." Regs. 09.30.67.01. A person who complains that another has violated the Insurance Code and who desires a hearing on that complaint must request the hearing within thirty days of "having been notified of the Commissioner's action, intention to act, or failure to act." Regs. 09.30.67.04B. The general rule is that the "Commissioner shall grant a hearing unless" (1) the Commissioner has no authority to take action; or the request (2) is frivolous or made in bad faith; (3) does not contain required information; (4) is untimely; or (5) is moot. Regs. 09.30.67.04C. The issue at a preliminary hearing is whether "there is reasonable cause to believe that a person has violated the Insurance Code[.]" Regs. 09.30.67.06A(1). If the hearing officer concludes that there is reasonable cause to believe that a person has violated the Insurance Code, the hearing officer reports the findings and conclusions in writing to the Commissioner. Id. If the Commissioner "[a]ccepts the report of the hearing officer, he may issue an administrative charging document alleging that a licensee has violated the Insurance Code[.]" Regs. 09.30.67.06A(1)(a)(i). If the hearing officer finds there is no reasonable cause to believe a person is in violation, "the hearing officer shall order [that] the matter be dismissed." Regs. 09.30.67.06A(1)(b). ²

Appeals from the Commissioner, other than those governed by § 242B (dealing principally with rates), are governed by § 40. Of significance here is that § 40(1) authorizes an appeal "with respect to a matter [as to] which the Commissioner has refused a hearing." Under § 40(4) the hearing on § 40 appeals is "de novo." ³

II

Respondent, Dr. Michael O. Magan (Dr. Magan), is an obstetrician/gynecologist who is licensed in the State of Maryland and who, prior to the events hereinafter described, was privileged to practice both specialties in a number of metropolitan Baltimore area hospitals. Prior to August 1, 1984, Dr. Magan obtained his malpractice insurance from Medical Mutual Liability Insurance Society of Maryland (Medical Mutual), one of the respondents. From August 1, 1984, to July 31, 1985, Dr. Magan was insured by another company under a policy issued through the American College of Obstetricians and Gynecologists. Dr. Magan applied to Medical Mutual for a claims-made policy commencing August 1, 1985, after he learned that his insurer would cease writing malpractice coverage.

Medical Mutual's underwriting department declined to cover, citing three claims against Dr. Magan based on occurrences in 1979 and 1980. In mid-August Dr. Magan met with the board of directors of Medical Mutual to have the underwriting decision reviewed. As a result of that meeting Medical Mutual continued to refuse to write obstetrical coverage for Dr. Magan but did offer to cover for surgery-gynecology at a 100% surcharge for the first policy year.

Dr. Magan thereupon engaged counsel through whom Dr. Magan, by letter of September 11, 1985, complained to the Insurance Commissioner alleging that Medical Mutual had violated § 234A. Dr. Magan also demanded a hearing "[i]n accordance with Section 35[.]" ⁴

The Chief Investigator of the Property and Casualty Section of the Division transmitted Dr. Magan's complaint to Medical Mutual for response. ⁵ By letter of October 18, 1985, Medical Mutual responded that the basic reason for its refusal to underwrite was Dr. Magan's "extremely adverse claims history." The insurer pointed out that one of the claims, involving an "[a]lleged failure to monitor preeclampsia resulting in infant hypoxia and retardation" had been settled on July 16, 1984, and that Medical Mutual had paid $963,538.28 indemnity, plus expenses. Another claim, involving "[a]lleged delayed interpretation of fetal monitoring strip resulting in [a] crash caesarean section and infant death" was on appeal following a favorable health claims arbitration panel ruling. Medical Mutual had a six figure reserve on that claim and had paid...