St. Paul Fire & Marine Ins. Co. v. Insurance Commissioner, 10

Decision Date01 September 1975
Docket NumberNo. 10,10
Citation339 A.2d 291,275 Md. 130
PartiesST. PAUL FIRE & MARINE INSURANCE COMPANY v. INSURANCE COMMISSIONER of the State of Maryland et al. ,
CourtMaryland Court of Appeals

Thomas J. S. Waxter, Jr. and Norman P. Ramsey, Baltimore (Alan N. Gamse and Semmes, Bowen & Semmes, Baltimore, on the brief), for appellant.

Francis B. Burch, Atty. Gen., and William J. Giacofci, Asst. Atty. Gen. (Gerald Langbaum, Asst. Atty. Gen., on the brief for Insurance Commissioner of the State of Md. and John F. King, Frederick G. Savage and Anderson, Coe & King, Baltimore, on the brief for Hilbert M. Levine), for appellees.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.

LEVINE, Judge.

This appeal by St. Paul Fire & Marine Insurance Company (the company) is from an order of the Baltimore City Court (Liss, J.) affirming an order of the Insurance Commissioner of the State of Maryland (the commissioner), one of two appellees in this Court.

The order requires the company to 'accept for renewal at currently applicable rates' the physicians' and surgeons' liability insurance (medical malpractice) policy of Dr. Hilbert M. Levine, the other appellee. The order, as modified by the court below, also directs the company to continue accepting 'the business of physicians' and surgeons' liability insurance in the State of Maryland, by receiving all new applications . . ., and by considering for renewal all outstanding policies for such insurance issued by the Company which have expiration dates on or after January 1, 1975 . . ..' (emphasis added). We granted a Writ of Certiorari and advanced the case for argument because of the important issues that are presented, and the critical circumstances that have developed in regard to medical malpractice insurance in Maryland.

Following the oral argument on March 21, 1975, we issued a per curiam order in which, after concluding that the statutory basis for the orders passed by the Commissioner and the court below-Maryland Code (1957, 1972 Repl.Vol., 1974 Cum. Supp.) Art. 48A, § 234A-'(is) not applicable to the decision of the appellant-insurer to cease writing its entire line of medical malpractice insurance policies in this State,' we ruled 'that upon the filing of (this) opinion in (the) case, and the subsequent issuance of the Court's mandate,' the order of the Baltimore City Court would be reversed with directions to cause the order of the commissioner to be vacated.

The company, a 'multi-line' insurance carrier operating throughout the United States and in other countries, is authorized to do business in Maryland by virtue of a certificate of authority issued by the commissioner. In the late 1930's or early 1940's, it became one of the first insurers to market what is commonly referred to as medical malpractice insurance. In 1960, it commenced a special relationship with the Maryland Medical and Chirurgical Faculty (Med-Chi), whereby it became the sponsored insurer of its members for medical malpractice insurance. At that time, as is the case today, the company was one of approximately twelve writing such insurance in Maryland.

The sponsorship arrangement imports neither group insurance nor a contractual relationship. The company simply commits itself to provide medical malpractice insurance to the members of Med-Chi, and each individual physician is issued a separately underwritten policy. Med-Chi merely agrees 'to work with' the company in the areas of loss prevention and in the review and processing of claims. At the commencement of the relationship in 1960, the company wrote between 15 and 20 percent of medical malpractice insurance marketed in Maryland; by 1974, under the sponsorship arrangement, it had become the insurer for some 3,600 physicians, or approximately 85 percent of those practicing in the state.

With the advent of specialization and greater complexity in the practice of medicine have come increasing demands upon the insurance companies handling medical malpractice insurance. Claims adjusters and defense attorneys in this field must now possess a specialized expertise. Not surprisingly, therefore, these circumstances, together with other developments in medical malpractice litigation, have increased the underwriting risk of this form of coverage, and have reduced the national market to some 12 insurance companies.

As this case demonstrates, however, nothing reflects the impact of these trends more impressively than the dramatic rise which has occurred in the cost of such insurance in the last few years. In September 1973, the company filed a request for a rate increase of 59.7 percent which was denied on the following November 13. As the result of a conference between the commissioner and company representatives, an amended request for an increase of 45.9 percent was filed, which was granted effective January 4, 1974.

Reacting sharply to the action of the commissioner in paring its request, the company wrote to the executive director of Med-Chi that it could not continue to write medical malpractice coverage on what it characterized as 'a net loss basis.' After summarizing the efforts it had made to obtain rate releif, it predicted that the loss experience would continue 'to deteriorate.' Hence, an early request for additional rate relief was likely. It concluded with this statement: 'Should there be a lengthy delay in acting upon the 1974 rate increase, or if the request is denied, we will be unable to continue in our present capacity as the sponsored carrier in Maryland beyond 1974.'

Subsequently, a request was made for an increase of 48 percent which was denied in May 1974. In rejecting this request, the commissioner assigned several reasons, the essence of which was that he disagreed with the actuarial procedures employed by the company in assembling its request. Further administrative and judicial review of the commissioner's action was not sought.

Upon the rejection of the rate increase, the company wrote to both the commissioner and Med-Chi on June 17, 1974, and announced that a new sponsored insurer should be sought, since it would 'cease writing physicians and surgeons professional liability in Maryland by January 1, 1975.' It promised 'to provide (its) normal market until such time as a new sponsored carrier (was) designated by Med-Chi, or January 1, 1975, whichever occur(red) first.'

On November 14, 1974, the company directed a 'notice of non-renewal' to Dr. Levine in which he was advised that his two policies ('primary' and 'excess' coverage), which were scheduled to expire on January 1 and 2, 1975, respectively, would not be renewed. In an accompanying explanation, the company summarized its unsuccessful efforts to obtain what it regarded as the necessary rate relief. The thrust of its position was that in its 13-year relationship with Med-Chi, it had incurred an alleged 'deficit on this line of business in Maryland of nearly $10,000.000.' Hence, it was compelled 'to withdraw from Maryland for this line of business.' At the same time, the company initiated a similar procedure of issuing notices to all of the physicians it insured in Maryland 45 days in advance of their respective expiration dates.

Upon a complaint being lodged with the commissioner by Dr. Levine, a hearing was scheduled which was held on December 20 and 23, 1974. The commissioner ruled that § 234A, as amended by chapter 752 of the Laws of 1974, was applicable, and that the company had not met its burden of persuasion to 'demonstrate that the . . . refusal to underwrite or renew (was) justified . . ..' Consequently, he ordered the company to renew Dr. Levine's policies, and to 'accept the business of Physicians' and Surgeons' liability insurance in the State of Maryland . . . at currently approved rates . . ..' In so ruling, the commissioner observed:

'The statute in question specifically limits the action of an insurer (or agent or broker) in making what is termed 'underwriting decisions' (refusal to write a risk or class of risk in the first instance, the cancellation of a risk or class of risk in midterm or the failure to renew a risk or class of risk at the end of a policy period), in thre distinct areas. These include:

'1. Underwriting decisions based 'in whole or in part upon race, color, creed or sex of an applicant or policyholder.'

'2. Underwriting decisions based on 'any arbitrary, capricious, or unfairly discriminatory reason.'

'3. Underwriting decisions not based on 'standards which are reasonably related to the insurer's economic and business purposes."

He then found that the company had violated standards '2' and '3' in reference to both Dr. Levine, an individual risk, and the medical community as a whole, a class of risk. On appeal to the Baltimore City Court, as we noted earlier, the order of the commissioner was modified and, as modified, affirmed.

In this Court, the company advances these contentions:

1) Section 234A does not apply because the company has made a general business decision not to underwrite an entire category of insurance, rather than a specific decision involving only a 'particular insurance risk or class of risk.'

2) The company has met its burden of persuasion of showing its decision to have been by the application of standards which are reasonably related to its economic and business purposes.

3) That § 234A is unconstitutional.

Since we agree that the statute is inapplicable to this case, it is unnecessary for us to decide the remaining two points.

Section 234A was first enacted as chapter 417 of the Laws of 1970. In relevant part, it then prohibited any insurer from cancelling and refusing to underwrite or to renew 'a particular insurance risk or class of risks for any arbitrary, capricious, unfair or discriminatory reason, based in whole or in part upon the race, creed, color, religion, national origin or place of residency of an applicant or...

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