Appellate Court of Maryland Addresses Collateral Estoppel and the Duty to Defend in Matters before the Maryland Insurance Administration

 In the Matter of Justin Holder, No. 1627, September Term, 2024. Opinion by Nazarian, J.

        In the case In the Matter of Justin Holder, the Appellate Court of Maryland held that the Maryland Insurance Administration’s decision in Holder’s unfair claims settlement action collaterally estopped him from relitigating the issue of whether his insurer owed him a duty to defend.
Mr. Holder purchased two policies from his insurer – a homeowner’s insurance policy and an umbrella policy. Both policies contained a duty to defend, or in other words, the contractual obligation of the insurer to provide its insured (in this case, Mr. Holder) with legal representation against covered claims.
Mr. Holder and his wife later became involved in a land dispute which led to claims of trespass to land, private nuisance, and aiding and abetting trespass to land, among others. Mr. Holder requested his insurer provide coverage and defense in connection to these claims, which his insurer denied, as the complaint alleged only injuries that were expected or intended by the actions of Mr. Holder and his wife.

        Disagreeing with his insurer’s denial of coverage, Mr. Holder filed an administrative complaint with the Maryland Insurance Administration (MIA) alleging his insurer violated § 27-303 of the Maryland Insurance Article, which prohibits insurance companies from using unfair claims settlement practices, including arbitrarily refusing to pay for a claim. After a hearing, the MIA found that Mr. Holder’s insurer did not violate § 27-303 and did not owe Mr. Holder coverage or a defense for the lawsuit against him.

        Almost a year later, Mr. Holder filed another MIA administrative complaint against his insurer for the same denial of coverage/defense. This time he claimed his insurer violated § 27-1001[1] of the Maryland Insurance Article by denying coverage “not in good faith.”  Mr. Holder requested a hearing with the Office of Administrative Hearings, but the Administrative Law Judge issued a written decision without a hearing, holding that they had already determined that the insurer did not owe Mr. Holder coverage or defense for the lawsuit against him. Essentially, Mr. Holder was attempting to bring his same complaint in front of the MIA again, just under the guise of a different statute. Since his first complaint had been heard, fully addressed and ruled on, Mr. Holder could not bring it in front of the MIA again.

        Mr. Holder then filed a petition for judicial review of the Administrative Law Judge’s decision not to hear his second MIA complaint. Along with this petition for judicial review, Mr. Holder filed an amended complaint with various civil claims. The Circuit Court for Washington County held a hearing, affirming the Administrative Law Judge’s decision. The Court also struck Mr. Holder’s amended complaint, as a civil claim sought to be tried before a jury cannot be brought alongside a petition for judicial review.

        Mr. Holder appealed to the Appellate Court of Maryland, and the Court issued a written opinion. First, the Appellate Court held that the MIA ruled correctly when it determined that Mr. Holder was precluded from bringing his second MIA complaint against his insurer. When Mr. Holder brought his first MIA complaint against his insurer, alleging unfair claims settlement practices by his insurer’s denial of coverage and defense, and a final MIA decision was issued, Mr. Holder and his insurer were bound by the decision - it could not be brought up before the MIA again. Therefore, when Mr. Holder attempted to bring his second MIA complaint against his insurer, instead alleging that his insurer’s denial of a duty to defend was not in good faith, the MIA was correct in denying this complaint, holding that they had already ruled on this issue.

        The Appellate Court of Maryland’s holding in this case has a significant impact on  the practice of insurance law as it shows that 1) MIA hearings regarding unfair claims settlement practices can create final, binding decisions on an insurance company’s duty to defend and 2) an insurance company cannot be considered as acting in bad faith regarding a claim when it did not owe its insured a duty to defend against the claim in the first place. 

 
        Although RSRM was not counsel in this particular case, we maintain a robust practice defending insurers against MIA complaints. We leverage our deep experience in Maryland insurance law to provide a vigorous defense for our clients’ interests and regulatory standing.  Please contact Ben Beasley (BBeasley@RSRM.com) for more information.

-          Cailey Duffy, Associate

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[1] § 27-1001 of the Maryland Insurance Article requires insurance companies to make “informed judgments based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim.”