United States District Court for the District of Maryland Rules in Favor of Maryland Insurance Companies on First Party Claims

On April 6, 2016, Judge Ellen Lipton Hollander of the U.S. District Court for the District of Maryland granted American Western Home Insurance Company’s Motion to Dismiss for Failure to State a Claim, reaffirming that: (1) Maryland does not recognize a first party bad faith claim against an insurance company under a tort theory; and (2) the Maryland Consumer Protection Act (“MCPA”) does not apply to insurance companies licensed to do business in Maryland.

Plaintiff Joe Gladney sued Defendant American Western Home Insurance Company (“American Western”) in Civil Action No.: ELH-15-1559 for: (1) “bad faith” in failing to adequately consider the severity of, and properly investigate, his claims; (2) breach of contract for denying coverage; and (3) violating the MCPA by falsely representing that it provided coverage for losses suffered as a result of windstorms after it denied coverage for windstorm damage to Plaintiff’s warehouse, which was insured by a commercial property and general liability insurance policy issued by the American Western. American Western argued that it had denied coverage based upon its finding that the damage was due to defective manufacturing and installation of metal brackets used on the warehouse’s roof, not a windstorm. 

Maryland has long recognized a tort cause of action by an insured party where an insurer refuses in bad faith to settle a third-party’s claim against the insured; however, the Court – citing to the Fourth Circuit’s decision in Hartz v. Liberty Mut. Ins. Co., 269 F.3d 474 (4th Cir. 2001) – concluded that Maryland law does not recognize first party tort actions against insurers for failure to settle insurance claims. While Plaintiff attempted to circumvent that long-standing principle by alleging his claim derived from the Maryland Unfair Claim Settlement Practices Act (“MUCSPA”), the Court pointed out that the MUCSPA specifically provides only “administrative remedies,” and does not create a private cause of action.

In analyzing Plaintiff’s MCPA claim, the Court succinctly quoted the relevant provision of the Commercial Law article of the Maryland Annotated Code Section 13-104, titled “Exemptions,” which states that the MCPA does not apply to:

The professional services of a certified public accountant, architect, clergyman, professional engineer, lawyer, veterinarian, insurance company authorized to do business in the State, insurance producer licensed by the State, Christian Science practitioner, land surveyor, property line surveyor, chiropractor, optometrist, physical therapist, podiatrist, real estate broker, associate real estate broker, or real estate salesperson, or medical or dental practitioner[.]

Md. Code Ann., Com. Law § 13-104(1) (emphasis added).

Given that Western American is explicitly included in that exceptive list, as an “insurance producer”, the Court granted its Motion to Dismiss Plaintiff’s claim for violation of the MCPA for failure to state a claim upon which relief can be granted.

This matter will proceed on Plaintiff’s breach of contract action and RSRM will continue to follow this and other relevant matters in this District’s Federal Court.  

- Jessica P. Butkera