Veydt v. Lincoln Nat. Life Ins. Co.

Decision Date01 September 1992
Docket NumberNo. 122,122
Citation94 Md.App. 1,614 A.2d 1318
PartiesGerald R. VEYDT v. LINCOLN NATIONAL LIFE INSURANCE COMPANY. ,
CourtCourt of Special Appeals of Maryland

Edward J. Birrane, Jr. (Birrane, Harlan & Brattan, on the brief), Baltimore, for appellant.

Bryan D. Bolton (Stewart P. Hoover and Shapiro and Olander, on the brief), Baltimore, for appellee.

Argued before ALPERT, WENNER and CATHELL, JJ.

CATHELL, Judge.

Appellant, Gerald R. Veydt (Veydt), appeals the granting of a motion to dismiss filed by Lincoln National Life Insurance Company (Lincoln National), appellee. The case arises out of appellee's termination of an agency contract between the parties and the subsequent notification to policyholders by appellee that the agency relationship had been terminated and that the insureds had the right to continue coverage under appellee's policies. Appellant's complaint, alleged in Count I, "False Light" and in Count II, "Tortious Interference with Business Relationships." 1

The Court of Appeals has stated that the substance of a pleading and not its title, determines the cause of action:

Ordinarily, "magic words" are not essential to successful pleading in Maryland. Courts and administrative agencies are expected to look at the substance of the allegations before them, not merely at labels or conclusory averments. "[O]ur concern is with the nature of the issues legitimately raised by the pleadings, and not with the labels given to the pleadings." [Citations omitted.]

Alitalia v. Tornillo, 320 Md. 192, 195-96, 577 A.2d 34 (1990).

In a comprehensive and well-reasoned opinion, Judge Davis, of the Circuit Court for Baltimore City, dismissed appellant's claim in the case sub judice, essentially finding that the statutory remedy contained in Maryland Annotated Code article 48A, sections 234B and 55A (1991), created an exclusive remedy for the redress of appellant's complaints. His reasoning is hard to improve upon, we therefore include it here:

The verbal [written] communications, which form the predicate for Veydt's claims, are so intricately bound up with the act of termination ... that they cannot be made the basis for a separate tort claim....

....

If a common law tort claim may be asserted on the basis of verbal acts forming a necessary and appropriate part of the process of [agency] contract termination, as regulated under sec. 234B(d), then that subsection would have no vitality whatsoever....

It is difficult to imagine how the Commissioner's legislatively-created primary jurisdiction over terminations that are "arbitrary, capricious, unfair or discriminatory" would survive the artful pleading of skillful advocates. Here, the amended complaint's heavy reliance upon Lincoln's communications does not obscure the reality that Lincoln's act (of contract termination) is the gravamen of the alleged harm.

In Magan v. Medical Mutual Liability Insurance Society, 81 Md.App. 301, 303, 567 A.2d 503 (1989), we held that an individual cannot maintain, in addition to the statutory remedy, a tort action for damages in circuit court based upon the same issues advanced or that should have been advanced in the administrative proceedings. 2

As indicated, we agree with the trial judge. We explain further.

The Statutory Provisions

Article 48A, section 234B was enacted by Chapter 417 of the Laws of 1970. Its stated purpose was to "establish standards of fairness in ... [the] treatment of agents" and to confer authority on the Insurance Commissioner "to remedy failure to observe such standards." Section 234B prohibits any insurer from cancelling or amending a written agreement with an agent "if the cancellation ... is arbitrary, capricious, unfair." (Emphasis added.) It would be hard to find a clearer statement of legislative purpose than that contained in Chapter 417.

Maryland Annotated Code article 48A, section 55A, is the penalty provision of the Insurance Code. By Chapter 755 of the Laws of 1971, the Legislature reiterated its intention that the Commissioner be fully charged with the responsibility to remedy violations of Article 48A when it increased the maximum penalty the Commissioner can impose from $25,000 to $50,000 and, more important, added to section 55A provisions authorizing the Commissioner to "require that restitution be made by such insurer to any person who has suffered financial injury or damage as a result of such violation." (Emphasis added.)

The Court of Appeals has stated one of the principles of statutory construction as:

Where, as here, two statutes deal with the same subject matter and are not inconsistent ... they must be construed together and, to the extent possible, full effect given to each....

... Unless the intention of the legislature is clearly otherwise, "the requirements of one will be construed as embodying the provisions of the other." [Citations omitted.]

Commission on Medical Discipline v. Bendler, 280 Md. 326, 330, 373 A.2d 1232 (1977). See also Taxiera v. Malkus, 320 Md. 471, 480-81, 578 A.2d 761 (1990) ("Words in a statute must, therefore, be read in a way that advances the legislative policy involved.... [t]he courts strongly favor a harmonious interpretation in construing the related statutes which gives full effect to both ..."); Kaczorowski v. Mayor and City of Baltimore, 309 Md. 505, 511, 525 A.2d 628 (1987). We shall later construe sections 234B and 55A in light of the facts in the case at bar. First, however, we shall discuss the general law of agency and the doctrine of apparent authority.

The Letter to the Insured

Appellee proffers in its brief that if it had not notified its policyholders that appellant was no longer its agent, it might have incurred liability for Mr. Veydt's actions after cancellation. We agree. The doctrine of apparent authority is well settled in Maryland. The Court of Appeals in Reserve Insurance Company v. Duckett, 240 Md. 591, 600-01, 214 A.2d 754 (1965), has stated that this doctrine is applicable to insurance companies:

The doctrine is stated succinctly in Hobdey v. Wilkinson, [201 Md. 517, 526, 94 A.2d 625 (1953) ] as follows: "One who knowingly permits another to act for him as though authorized, inducing third persons to rely to their disadvantage on the seeming authority, is estopped from later asserting the lack of authority of his apparent agent."

... [T]he doctrine of either apparent authority or estoppel can be applied, in an appropriate case, even where authority to bind an insurance company is involved. Taylor v. United States Casualty Co. (S.C.) , 92 S.E.2d 647, 652 [ (1956) ]. That this is true in Maryland is either held or indicated in Hankins v. Pub. Ser. Mutual Ins. Co., [192 Md. 68, 79-82, 63 A.2d 606 (1949) ]; American Casualty Co. v. Ricas, [179 Md. 627, 631-34, 22 A.2d 484 (1941) ] and Trust Co. v. Subscribers, Etc., [150 Md. 470, 475-76, 133 A. 319 (1926) ].

Similarly, we said in Progressive Casualty Insurance Co. v. Ehrhardt, 69 Md.App. 431, 441, 518 A.2d 151 (1986):

Specifically, the principal becomes responsible for the agent's actions when the principal's conduct, either affirmative acts or the failure to take corrective steps, has clothed an agent with apparent authority and thereby induces a third party to rely to his detriment.

Furthermore, under general agency law, the responsibility of the principal to third persons extends and binds the principal when the agent is "held out ... to the other party, as having competent authority, although, in fact, he has, in the particular instance ... acted without authority." Parker v. Junior Press Printing Serv., Inc., 266 Md. 721, 728, 296 A.2d 377 (1972) (quoting Wailes and Edwards, Inc. v. Bock, 265 Md. 274, 289, 289 A.2d 297 (1972)).

In the present case, prior to termination, appellant was appellee's agent and was permitted to procure and service policies. Until such time as appellee notified its policyholders that appellant was no longer its agent, it had held appellant out as appellee's agent for the purpose of procuring and servicing the policies in question. Notwithstanding the fact that appellant's actual authority was terminated, absent some notification, apparent authority might still exist as to those policyholders without actual knowledge of the termination. See Insurance Management of Washington, Inc. v. Eno & Howard Plumbing Corp., 348 A.2d 310, 312 (D.C.1975). The letters, restrained as they were in form and nature, were corrective steps necessary to terminate the agent's apparent authority as to the policyholders. Absent the letters, or other sufficient notice, the termination of the agent's actual authority may well have left extant apparent authority to bind the appellee.

Judge Bell, for the Court, said that the authority of an agent may be actual or apparent. Hill v. State, 86 Md.App. 30, 35, 585 A.2d 252 (1991). We opined, however, that the authority may be subject to limitation and that: "If that limitation is brought to the attention of the party with whom the agent is dealing, the power to bind the principal is subject to that limitation. Generally, one who deals with an agent knowing of the limitations cannot hold the principal beyond that limit." Id. at 35, 585 A.2d 252 (citation omitted). We know of no other reasonable way to notify the policyholders of the termination of appellant's authority other than to communicate that termination to them. Letters, especially those as restrained in content as in the case at bar, are a particularly effective method of communication. Such letters do not give rise to separate causes of action vis-a-vis the principal and the agent.

Although we have not been directed to any Maryland cases, nor have we found any, expressly accepting such letters in an insurer/agent context as appropriate methods of communicating the termination of an agency to concerned third parties, courts of other jurisdictions have specifically held that letters of notification are either required or...

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