E-Alert Case Updates

Insurers Not Liable in Tort or under the Maryland Consumer Protection Act for Failure to Settle Claim with Insured

Gladney v. American Western Home Insurance Company
(April 6, 2016) United States District Court for the District of Maryland
by Matthew J. McCloskey, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdd.uscourts.gov/Opinions/Opinions/15-cv-1559%20-%20
Gladney%20-%20MTD%20Memorandum%20Opinion%20-
%204-6-2016%20-%20FINAL.pdf

In a recent opinion, the United States District Court for the District of Maryland reaffirmed that: (1) Maryland does not recognize a cause of action sounding in tort against an insurer that fails to settle a claim; and (2) insurance companies licensed to do business in Maryland cannot be held liable under the Maryland Consumer Protection Act (“MCPA”).

On July 31, 2010, Plaintiff, Joe Gladney, purchased a commercial property and general liability insurance policy (the “Policy”) from Defendant, American Western Home Insurance Company, with a policy period of twelve (12) months and a maximum coverage of $1,000,000 per occurrence.  On February 1, 2011, Plaintiff’s warehouse allegedly suffered damage in a windstorm, and Plaintiff sought payment from Defendant under the Policy.  Defendant denied coverage, asserting that the damage suffered by Plaintiff’s warehouse was due to the defective manufacturing and installation of metal brackets attached to the roof of the warehouse.  Plaintiff subsequently hired an expert to evaluate the damage, and the expert concluded that the damages were, in fact, due to the windstorm.

In light of his expert’s opinion, Plaintiff sued Defendant, setting forth three (3) causes of action: (1) “bad faith” related to Defendant’s alleged failure “to adequately consider the severity of Plaintiff’s claims,” “properly investigate the Plaintiff’s claims,” and act without undue delay; (2) breach of contract due to Defendant’s denial of coverage; and (3) violation of the MCPA related to Defendant’s representations that it provided coverage for losses due to windstorms.  Defendant moved to dismiss Plaintiff’s claims for bad faith and violation of the MCPA, arguing that Plaintiff had failed to state a claim.

Judge Ellen Lipton Hollander, writing for the Court, granted Defendant’s motion.  Addressing first whether Plaintiff had stated a claim for “bad faith,” the Court noted that Plaintiff’s claim was predicated solely on the Maryland Unfair Claim Settlement Practices Act (“MUCSPA”).  The MUCSPA, however, specifically provides that it “provides administrative remedies only.”  The Court therefore concluded that MUCSPA does not create a private cause of action. 

Moreover, Maryland law does not recognize a first party tort action against insurers for failure to settle insurance claims.  In this regard, the Court cited to Hartz v. Liberty Mutual Insurance Company, 269 F.3d 474 (4th Cir. 2001).  In that case, the plaintiff alleged that her insurer unduly delayed in repairing her home after it was damaged in a fire.  The plaintiff filed a complaint with the Maryland Insurance Administration, and the insurer was fined, but the insurer did eventually complete the repairs.  The plaintiff then filed a lawsuit against the insurer, alleging that she was physically harmed by the insurer’s undue delay.  The Fourth Circuit ultimately held that the plaintiff had failed to state a claim, explaining that Maryland does not recognize a tort action related to an insurer’s failure to settle with their insured.  Instead, the insured’s remedy is a breach of contract action.  Judge Hollander noted that Plaintiff’s allegations of bad faith in this case amounted to the same cause of action asserted in Hartz, and the Court therefore granted Defendant’s motion to dismiss Plaintiff’s claim for bad faith.

Turning to Plaintiff’s claim for violation of the MCPA, the Court pointed out that the MCPA specifically states that it does not apply to an “insurance company authorized to do business in the State” or an “insurance producer licensed by the State.”  Because Defendant clearly fell within those categories, the Court granted Defendant’s motion to dismiss Plaintiff’s claim for violation of the MCPA.