Government Employees Insurance v. Insurance Commissioner

Citations: 40 Md. App. 201; 389 A.2d 422; 1978 Md. App. LEXIS 258Docket: No. 1344

Court: Court of Special Appeals of Maryland; July 18, 1978; Maryland; State Appellate Court

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Government Employees Insurance Company (GEICO) denied renewal of an automobile insurance policy for Leonard and Audrey K. Frank, citing their son Alan's four speeding violations while operating the vehicle. Alan, who did not reside with his parents, was viewed by GEICO's underwriters as a significant risk. Following a complaint to the State Insurance Commissioner, a hearing mandated GEICO to renew the policy with an additional surcharge due to the increased risk. GEICO contested this ruling, arguing that the Commissioner overstepped his authority. The Baltimore City Court upheld the Commissioner's decision, stating GEICO failed to provide adequate notice of non-renewal. GEICO subsequently appealed, raising several legal questions, but the court focused on two key issues. 

The case was also influenced by GEICO's financial distress, having sustained substantial underwriting losses in 1974 and 1975, including a $191 million loss in 1975. Consequently, GEICO was ordered to reduce its automobile policies by 40% and sought a premium increase to stabilize its finances. Initial requests for a 21.9% increase were rejected, leading to a revised request for a 10% increase along with a merit-demerit surcharge plan to adjust premiums based on driving records. The Commissioner approved this plan, contingent on it promoting market expansion without resulting in cancellations or non-renewals.

On September 2, 1976, GEICO's chairman confirmed that the approval of their rate changes was based on a prior commitment to reduce non-renewals in Maryland. GEICO aimed to implement these changes to significantly decrease their non-renewal activity in the state. On December 14, 1976, GEICO submitted revised 'Maryland Reunderwriting Standards,' intending to renew more policies under a new Demerit system that altered how accidents and violations were assessed. Risks previously deemed undesirable might become acceptable, while certain risks would still be non-renewed or subjected to a named driver exclusion.

The standards specified that individuals with three moving violations within 39 months prior to policy expiration were considered undesirable for non-renewal. On January 28, 1977, the Commissioner approved GEICO's modified rates and classification procedures. The Franks became involved after receiving a GEICO questionnaire on March 8, 1977, regarding their insurance policy for a 1976 Pontiac LeMans used by their son, Alan. Leonard Frank reported no accidents or violations, but GEICO later discovered Alan had four speeding tickets over the past two years.

On March 29, 1977, GEICO notified the Franks that their policy would not be renewed due to Alan's driving record. They were informed of their right to protest this action and request a hearing within 15 days, which Mr. Frank did within two days. The Commissioner ordered GEICO to continue coverage for the Franks’ vehicle. The validity of the non-renewal notice was not contested in the administrative proceedings but was later raised in the Baltimore City Court during GEICO's appeal. GEICO argued that this issue was improperly introduced, but the court considered it, as per Maryland law, which allows for a de novo review of the case and the evidence presented. The law provides the court with the authority to affirm, remand, reverse, or modify the Commissioner’s decision.

In Nuger v. Insurance Comm’r, the Court of Appeals clarified that sections 40 (4) and 40 (5) of Md. Ann. Code art. 48A must be interpreted together to allow additional evidence to be introduced "as a matter of right" during appeals from the Commissioner's decisions. The Court indicated that if the Commissioner could show that a notice of non-renewal did not comply with Md. Ann. Code art. 48A. 240AA (b), he could raise this as a new ground for affirming his decision. The trial court had the option to remand the case to the Commissioner for further evidence or to proceed de novo. It was noted that the Commissioner’s late introduction of the issue did not preclude its consideration, allowing GEICO to either request a remand or to present evidence against it.

Regarding the cancellation or non-renewal of automobile insurance policies, Md. Ann. Code art. 48A. 240AA (b) stipulates that insurers must provide written notice of non-renewal at least 45 days prior to the effective date, detailing the reasons in clear terms. GEICO provided such notice to Leonard and Audrey Frank, but the court found that the notice did not adequately convey the reasons for non-renewal in a specific manner. Although GEICO argued that Alan Frank was aware of his driving record, the notice was not addressed to him, but to his parents. The notice cited "Alan J. Frank’s driving record" without adequately explaining the non-renewal's basis, particularly failing to detail the frequency of violations within a two-year span or the context of a driver’s rehabilitation clinic attendance.

Alan was deemed a permissible risk under GEICO’s reunderwriting guidelines, despite his four speeding violations, but the notice provided to the Franks regarding the non-renewal of their policy lacked clarity about the reasons for this decision. Judge Thomas found that the reasons given were insufficiently specific, failing to inform the Franks adequately and not aligning with the testimony that indicated other insured motorists with similar records were surcharged instead of having their policies non-renewed. Consequently, GEICO's non-compliance with section 240AA (b) rendered them liable to the Franks for coverage under section 240D.

Furthermore, under Md. Ann. Code art. 48A. 240C-1, GEICO was mandated to offer a renewal excluding coverage for Alan, as the policy was issued to his parents, Leonard and Audrey K. Frank, who had clean driving records. GEICO's failure to extend such an offer meant the attempted non-renewal was ineffective. Although GEICO's counsel acknowledged the shortcomings in the notice, they sought the Court's guidance on the appeal's merits, which the Court declined, emphasizing that any opinion would be advisory and non-binding.

Judgment has been affirmed, with costs to be paid by the appellant, GEICO. The term 'insurance' entered the English language in 1649, and 'insurance company' appeared in 1784. GEICO raises several questions regarding the actions of the Baltimore City Court and the Insurance Commissioner, including whether their decisions were supported by substantial evidence, whether the Commissioner exceeded statutory authority in requiring GEICO to retain certain risks, and if GEICO adhered to the Notice Provisions of the Insurance Code. Additionally, GEICO questions whether the actions violated the Due Process Clause and conflicted with Maryland's public policy as expressed in the Maryland Automobile Insurance Fund. The court notes that the fourth and fifth questions were not raised in the trial court or before the Commissioner, rendering them improperly before the court.

The excerpt references a legislative amendment from 1977 that prevents insurers from canceling or refusing to renew automobile insurance based on traffic violations or accidents older than three years. It mentions a driver clinic attended by an individual named Alan, who had no violations post-June 22, 1976, aside from a speeding infraction. The document discusses amendments to Maryland's automobile liability insurance laws, including requirements for insurers to notify the Motor Vehicle Administration of policy cancellations or non-renewals. The court highlights that GEICO's legal counsel must base arguments on factual circumstances, acknowledging that while they can present facts favorably, they cannot change the underlying errors made by their client.