In thinking about claims professionals, I am reminded of Giles Corey, the strong, determined old man who was accused of being a witch in Old Salem. His tormentors tortured him by placing heavy stones, one at a time, on a board covering his chest. Despite the excruciating weight of the pain, Giles did not betray his friends or betray his own character. He was defiant to the end. As he was being crushed, his last words called to his tormentors were a request to add “more weight”.
Claims professionals oftentimes ask that “more weight” be added to their load they carry. Because they care, they want to know about issues of compliance, bad faith, and best claims handling practices. Because they want to protect the company they work for, they want to understand the administrative issues that might impact claims handling. Because they are concerned with issues of fraudulent and exaggerated claims, they want to know what they have to report to regulators. Claims professionals want to know the regulatory, statutory, and administrative stones that can add “more weight” to the normal aspects of claim handling.
Among other things, I view my job as an attorney as helping claims professionals carry “stones”. I like to assist them by alerting them to claims handling issues that are Maryland specific. These issues are many, diverse and ever changing. But recently the general counsel for one of my clients asked me a very specific questions in an attempt to ease the load of his claims professionals. His question was simply: “what do my claims professionals need to know on the first day of handling a first party claim in Maryland?”
In answering that question, I came up with a list of ten issues for claims professionals to be aware of when handling first party claims in Maryland, specifically focusing on what they should know on the first day of handling a Maryland claim. My goal was and is not to overburden claims professionals by giving them large stones to carry. Rather, my intent is to make large stones into pebbles that are manageable and can be carried.
With this in mind, here are ten things that a claims professional should know when they handle first party claims in Maryland.
- Acknowledging a Claim. Like many states, Maryland has enacted the Unfair Clams Settlement Practices Act. Among the provisions of the Act, there is a regulatory requirement with respect to the acknowledgment of a claim, namely COMAR 31.15.07.03B(10). This provision indicates that it is an unfair claims settlement practice if an insurer has a general business practice of failing, upon receipt of notification of a claim, to acknowledge the receipt of the notification within 15 working days. While the regulation does not specifically require that notification be in writing, it is best for a claims professional to acknowledge a claim in writing and to note that acknowledgment in the claims log.
- Status Reports to a Claimant. In addition to acknowledgment of the claim, COMAR has two requirements with respect to providing updates to claimants. COMAR 31.15.07.03B(15) provides that an insurer can be found to have committed an Unfair Claims Settlement Practices Act violation if an insurer, repeatedly, fails “to provide appropriate replies” to a claimant or the claimant’s representative within 15 working days of receiving written communications which suggest that a response is requested. In addition, COMAR 31.15.07.04B provides that if an insurer has not completed its claims investigation, it is required to provide written notification to the first-party claimant of the reason that additional time is necessary to complete the investigation. This written update of the status of the claim is required every forty-five days. Importantly, by virtue of COMAR 31.15.07.07, the deadline is extended whenever an insurer requests additional information in order to consider a claim. Consequently, communications, particularly with respect to request for needed information, need to be documented.
- Claims Handling Standard. Maryland administrative law provides standards for the handling of claims. More specifically, Section 27-303(2) prohibits an insurer from refusing to pay a claim for an arbitrary or capricious reason. Neither the statute nor any regulation promulgated by the Maryland Insurance Administration defines “arbitrary or capricious” standard in the context of an administrative review of an insurer’s refusal to pay a claim. In Berkshire Life Insurance Co. v. Maryland Insurance Administration, 142 Md. App. 628, 671(2002), the Maryland Court of Special Appeals discussed this standard as clarified by the Maryland Insurance Commissioner. After using a dictionary definition of the two terms, the Court gave guidance as to what would be a proper claims denial. In that regard, the Court indicated that an insurer could properly deny a claim where an insurer has a lawful standard which it applies across the board to all claimants and acts reasonably based on “all available information”. Because of this claims handling requirement, an insurer should not deny a claim unless: (1) it has given the insured an opportunity to provide information; and (2) it has conducted a reasonable investigation. Under Section 27-303(6), it is also an unfair claims settlement practice for an insurer to “fail to provide promptly on request a reasonable explanation of the basis for a denial of a claim.”
- Bad faith. In Maryland, “bad faith” claims are limited to third party claims, particularly where there is a judgment in excess of available policy limits. Maryland specifically does not allow a traditional ‘bad faith’ claim to be made with respect to a first party claim. That said, Maryland permits a statutory “lack of good faith” claim to be made with respect to first party claims. Section 3-1701 in the Court and Judicial Proceedings Article and Section 27-1001 of the Insurance Article apply to allegations that an insurer failed to act in good faith in determining coverage or in determining the amount of payment for a first-party claim under a property and casualty or individual disability insurance policy. The law defines “good faith” as “an informed judgment 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.” Because the procedure for a “lack of good faith” complaint is complicated and has herculean time deadlines, it is beyond the scope of this article. A claims professional, however, should know that any decision that is made on a claim must be informed, timely, honestly made, and based upon evidence.
- Maryland law has a variety of provisions with respect to misrepresentations and fraud. As with any coverage issue, the first focus for issues of fraud and misrepresentation is the insurance policy itself. As with most states, there are issues concerning the quantum of evidence and the burden of proof with respect to any denial of a claim or the voiding of a policy ab initio because of fraud or misrepresentation. Additionally, Maryland’s highest court, in Van Horn v, Atlantic Mut. Ins. Co., 334 Md. 669(1994), determined that there are some limitations as to when fraud can be used to void a policy. Because of these evidentiary issues and statutory limitations, it is sometimes easier to deny a claim for failure to cooperate rather than for false swearing. A claims professional should, on day one of a claim, understand that denying a claim for fraud or misrepresentation is not easy.
- Fraud reporting. Despite the difficulties with denying a claim on the basis of fraud, Maryland has a number of provisions that require an insurer to police for fraud. For example, under Section 27-802 of the Insurance Article, an insurer, who in good faith has cause to believe that insurance fraud has been or is being committed, must report the suspected insurance fraud in writing to the Insurance Commissioner. Such reports are generally not subject to public inspection. The Maryland Insurance Administration will also, on occasion, submit specific fraud complaints to an insurer for investigation. When fraud is suspected or a claim is being denied for fraudulent activity, a claims professional needs to review the reporting requirements.
- Cancellation of a policy. Maryland has a variety of laws that relate to when and under what circumstances a policy may be cancelled or non-renewed. A claim investigation can reveal an increased risk that was not considered at the inception of the policy. A claims investigation can reveal inappropriate behavior on the part of insureds or additional insureds that were not anticipated. A claims investigation can reveal fraud or misrepresentations made by the insured either in the underwriting of the policy or in the making of a claim. All such activity might be the basis for the cancellation or non-renewal of a policy. Because of the stringency of Maryland’s non-renewal and cancellation requirements, a claims professional that notices an increased risk or inappropriate behavior of an insured should notify underwriting of those questionable activities.
- The Role of the MIA. The professionals at the Maryland Insurance Administration view their role, quite appropriately, as protecting the community from proscribed statutory activities. They take their role very seriously. When an administrative complaint is made against an insurer, particularly under Section 27-303 for a denial of a claim, the Maryland Insurance Administration will research such complaints thoroughly. It is imperative that the claims professional react to complaint inquiries promptly and with seriousness. Before writing a response to the Maryland Insurance Administration, the claims professional should understand the nature of the regulatory requirement at issue and respond completely to the inquiry for documents and information. If the claims professional does not understand the complaint, assistance should be requested.
- Online resources. A claims professional should understand that vast resources are available on the website of the Maryland Insurance Administration. There are a significant number of bulletins relating to first party issues that should be reviewed and considered in the handling of claims. In addition, significant decisions of the Maryland Insurance Administration and proposed regulations are posted. A claims professional should sign up on line to receive the Maryland Insurance Administration alerts.
- Claims log. A claims professional handling claims in Maryland should understand the importance of a detailed and complete claims log. It will generally provide protection from regulatory and lack of good faith claims, particularly where the activity log demonstrates the reasonableness of claims decisions. That said, claims professionals should understand that the Maryland Insurance Administration can request the complete claims log to investigate administrative or statutory complaints. While privileged information does not have to be produced, the Maryland Insurance Administration views issues of privilege restrictively. Once a claims log is produced, claimants and third parties can request that the logs be produced pursuant to Maryland’s Public Information Act. Exactly what must be produced when a Public Information Act is made is the subject of debate and sometimes litigation. A claims professional should understand on the first day of a claim that anything written in the claims log might have to be produced to the state’s top insurance regulator and to those opposing the claims decision. For that reason, a claims professional should make sure entries are complete, understandable and appropriate.
Regulations, statutes and case law imposes an imposing weight upon claims professionals. Hopefully, this list helps lessen the weight of such large stones.
Patricia McHugh Lambert has over 35 years of experience in handling complex commercial litigation and insurance matters. Ms. Lambert has worked on national class actions, significant litigation and regulatory matters for Fortune 500 companies. She has also assisted small and mid-sized companies and business executives with contract, real estate and commercial disputes that needed to be resolved quickly and efficiently. Ms. Lambert is best known as an attorney who knows the field of insurance. She has represented insurers, policyholders, and insurance producers in disputes both in court and before the Maryland Insurance Administration. Ms. Lambert can be contacted at 410-339-6759 and firstname.lastname@example.org.