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Top court to rethink pro-insurer standard
An insurance company’s denial of a West River couple’s claim after their carport collapsed could lead to a change in how Maryland courts interpret insurance policies — to the benefit of consumers.
The state’s highest court has agreed to re-examine the standard it set in prior rulings dating back as far as 1837. Under that standard, courts defer to the insurance company’s interpretation of policy terms as long as the insurers acted in good faith and the definitions reflect the ordinary and reasonable understanding of the words.
Very few states still adhere to that view. The overwhelming majority of jurisdictions say consumer insurance policies, at least, should be read liberally in the favor of the consumer — not the insurance companies who drafted the policies.
In the case the Court of Appeals has agreed to hear, Gregory and Moira Taylor filed a claim after their carport collapsed under the weight of ice and snow.
Their homeowners’ policy from State Farm Fire and Casualty Co. included coverage for the collapse of a building, but the policy did not define the term “building.”
State Farm denied the claim, saying the carport was not a building because it had 10 poles and no walls, while a building would need to have a roof and at least three walls.
In papers filed with the high court, Maryland People’s Insurance Counsel Peter K. Killough, the state’s chief advocate for insured Marylanders, countered that the term “building” is at best ambiguous.
Due to this ambiguity, the high court should interpret the policy in favor of the Taylors and order the company to pay the claim, Killough wrote.
So far, State Farm has won in every legal forum.
The Maryland insurance commissioner, a circuit court and the Court of Special Appeals have each held that State Farm concluded in good faith that a carport is not a “building” under an ordinary and reasonable understanding of that word.
But Killough, in his court papers, stated that an insurance company’s good faith should no longer be good enough.
“This case demonstrates the potential for Maryland’s existing common law on the construction of insurance policies to produce dramatically anti-consumer results that would be avoided under the rule applied in 44 other states, which require insurance policies to be construed liberally in favor of the insured,” wrote Killough, who was ill and unavailable for comment Wednesday. “Maryland law has been skewed for over a century in favor of insurance companies, and it is time to balance the analysis.”
But State Farm’s attorney, Michael J. Budow, said Wednesday that the Court of Appeals should retain the current standard.
“You can’t possibly define every single term in an insurance policy or else it would be an encyclopedia,” added Budow, of Budow and Noble P.C. in Bethesda. “So you take the ordinary and reasonable meaning.”
Expert vs. expert
State Farm denied the Taylors’ claim to replace the 20-foot by 24-foot carport that had collapsed in February 2010.
The Taylors appealed to the Maryland Insurance Administration that May. The agency’s Property and Casualty Division investigated and ruled for State Farm on Nov. 12, 2010. Based on the existing precedent, the division found State Farm’s denial of coverage was not “shown to be arbitrary, capricious or lacking in good faith.”
The couple requested a hearing before the Maryland insurance commissioner or a designee, at which point Killough successfully moved to intervene after concluding that the interest of insurance consumers generally could be affected by the case’s resolution.
At the Feb. 7, 2012, hearing, Killough called Jeffrey Gould, a certified public accountant and insurance adjuster, who testified that a carport is routinely regarded as either a “structure” or “building,” which are both covered in insurance policies. State Farm countered with Stanley Lipshultz, an insurance consultant, who said the company’s interpretation was reasonable and made in good faith, according to court papers.
On March 23, 2012, Maryland Insurance Commissioner Therese M. Goldsmith ruled for State Farm, finding the policy did not “use the terms ‘building’ and ‘structure’ interchangeably” and that “only a building is covered for collapse.”
The Baltimore City Circuit Court affirmed Goldsmith’s decision in August 2012, as did the intermediate Court of Special Appeals in a reported opinion last September.
Killough then sought review by the Court of Appeals, which last week decided it would hear the case.
In the Court of Appeals case, Killough — an appointee of Maryland Attorney General Douglas F. Gansler with the Senate’s consent — will be opposing the insurance company as well as Gansler’s office, which is defending the insurance commissioner’s decision in State Farm’s favor.
The court is expected to hear arguments this November, according to its clerk’s office. A decision is expected by Aug. 31, 2015, in the case, People’s Insurance Counsel Division v. State Farm Fire and Casualty Co. et al., No. 21, Sept. Term 2014.
